## ie1-informal-economy-endorsed

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---

### Purpose and scope
- The guidance note aims to:
  - present recommendations for a coherent set of statistical recommendations necessary for measurement of work and economic activity in the informal economy; and
  - identify and delineate the statistical issues on the informal economy that should be addressed as part of the update of the System of National Accounts 2008 (2008 SNA) and the Balance of Payments and International Investment Position Manual, sixth edition (BPM6).
- Conceptual guidance in the note will be complemented with a supplementary note on proposed practical guidance which will include tables and recommended indicators to present statistics on the informal economy.

### Policy needs for a statistical framework
- Observations:
  - Interest in the informal economy continues to attract considerable attention, with new informal types of economic activities emerging that create new types of jobs that could be characterized as less formal or informal.
- Key policy implications:
  - Informal production activities provide employment and income to many people who might otherwise be unemployed.
  - Informal workers and enterprises are less protected against negative economic shocks, often associated with lower and uncertain income, with broader consequences for inequality and poverty.
  - Quantification of the informal economy and data on its characteristics are needed for designing, implementing, monitoring and analyzing macro-economic and social policies and to assess their impact.

### Delineation: non‑observed economy versus informal economy
- The non-observed economy:
  - Includes economic activities that, for various reasons, are not captured in regular statistical enquiries.
  - Is a pragmatic term used in the context of achieving exhaustive statistics and may vary between countries.
  - Provides tools to exhaustively include production in the informal sector, illegal production, underground production, household production for own final use within the SNA production boundary, and other production not covered due to deficiencies in the data collection programme.
  - Many countries using these frameworks do not publish details of their adjustments, nor an overall measure of the non-observed economy.
- Overlap and distinction:
  - The informal economy and the non-observed economy have considerable overlaps, but each may include elements not in the other (example: undeclared and underdeclared production of registered economic units is relevant to the non-observed economy but not part of the informal economy).
  - Primary difference in purpose:
    - Frameworks for the non-observed economy aim to achieve exhaustive measures of production.
    - The framework for the informal economy aims to ensure consistent measures of informal production and informal labour inputs to inform policy decisions to formalize economic units and reduce vulnerability of informal workers.

### Informal economy in the 2008 SNA and the ILO framework
- 2008 SNA:
  - Established the connection between work on the informal sector, the informal economy, and integration in the national accounts.
  - Recognizes two separate goals for measuring potentially unregulated or uncovered activities (2008 SNA para. 25.1):
    - a complete view of the economy comparable over time and across economies; and
    - the analytical importance, especially in developing countries, of measuring effort by people without formal jobs to engage in monetary economic activity (2008 SNA, para 25.3).
  - Neither the 2008 SNA nor ILO resolutions provide a comprehensive set of statistical recommendations or framework for the informal economy.
- ILO activity:
  - ILO standards for the two main components of the informal economy (informal sector and informal employment) were adopted at the International Conference of Labour Statisticians (ICLS) in 1993 and 2003 (ILO, 1993, 2003).
  - ILO has a policy definition of the informal economy covering all productive activities by workers and economic units that are—in law and in practice—not covered by formal arrangements (ILO, 2002).
  - The ICLS in 2018 decided to update the standards to address known problems and ensure alignment with latest labour market standards; an ILO working group was formed in 2019 and has made substantial progress in developing a comprehensive set of statistics on the informal economy that forms the basis for the framework in the guidance note.
- 2008 SNA update:
  - Considers an increased focus on household production of services for own use as part of work to better reflect Wellbeing issues in the SNA; such household production is typically not covered by formal arrangements and should be reflected in a complete framework for the informal economy.

### Proposed statistical framework: overview
- Objective: present a consistent and coherent set of statistical concepts and definitions relating to the informal economy across national accounts, external sector statistics and labour statistics that are acceptable to labour statisticians and macroeconomic statisticians.
- Rationale: current statistical recommendations partially cover informality (e.g., informal sector, informal employment) but lack a comprehensive framework to understand scope and relationships among components of informality.
- Approach: focus on the perspective of the economic unit and its relation to informal productive activities and the informal economy.

### Core definitions
- Informal productive activities:
  - Defined as all productive activities carried out by persons or economic units that are – in law or in practice – not covered by formal arrangements.
  - Serves as an underlying concept linking the perspective of workers (informal labour inputs) and economic units (informal production).
- Informal economy:
  - Defined as constituting all informal productive activities carried out by workers or economic units within the general production boundary.

### Allocation of economic units and identification of informal activities
- Step 1: assign all economic units to one of three sectors depending on intended destination of production and formal status of the economic unit:
  - Formal sector
  - Informal sector
  - Household own-use production sector
- Step 2: identify productive activities (production and labour inputs) that are informal and thus part of the informal economy.

### Formal sector: scope and informal elements
- Composition:
  - Includes economic units that are formally recognized as producers of goods and services: corporations and quasi-corporations, government units, NPISHs and household unincorporated market enterprises that are registered for tax or similar purposes.
- Key points:
  - Production carried out by economic units in the formal sector, including undeclared and underdeclared production, is not part of the informal economy.
  - Formal economic units can use informal labour inputs for production; these labour inputs are part of the informal economy.
  - All independent workers in the formal sector are formal workers.
  - Dependent workers in employment, unpaid trainees and volunteers can be informal.
  - All labour inputs of informal workers are informal; workers in formal employment can provide informal labour inputs (e.g., when income and hours worked are not declared).
  - Data on informal labour inputs in the formal sector are compiled from a labour statistics perspective.

### Informal sector: scope and operational rules
- Definition:
  - A subsector of the household institutional sector comprising all household unincorporated market enterprises that are not formally recognized by government authorities because they are not registered for tax or similar purposes.
  - These informal household unincorporated market enterprises may be called informal enterprises.
- Key points:
  - All production within the informal sector is part of the informal economy.
  - The informal sector includes agricultural production of unincorporated household enterprises if the registration criteria above are met (departure from current ILO definition).
  - Enterprise size should not be used to classify unincorporated household enterprises as informal (departure from current operationalization).
  - A single household can carry out more than one type of market production not registered for tax; such activities should be identified as separate informal enterprises if feasible and relevant.
  - All workers engaged in informal enterprises are informal workers; therefore all labour inputs in the informal sector are informal.

### Household own-use production sector: scope and informal elements
- Composition:
  - Includes all households producing goods and services mainly intended for own final consumption.
- Key points:
  - Includes production of informal or temporary NPISHs, and direct volunteer work.
  - Extends beyond the SNA production boundary by including production of services by households for own use, direct volunteering and services produced by informal NPISHs.
  - Production of informal or temporary NPISHs and direct volunteer work is always informal.
  - Housing services of owner-occupiers are by convention excluded from the informal economy, as no informal labour inputs are used for this production activity.
  - Household own-use production other than the exceptions noted is mostly informal, though exceptions exist (e.g., own-use production registered to qualify for government compensation is not informal).
  - Own-use production undertaken through the labour of a domestic employee is informal only if the employee is in informal employment.
  - For analysis it may be helpful to separately identify production of services by informal or temporary NPISHs and direct volunteer work, and other informal household production without domestic employees.

### Illustrative examples of household own-use classification
- Free childcare to neighbours (direct volunteers) → part of the informal economy.
- Owner-occupier living in own home (housing services) → not part of the informal economy.
- Household formally employs a gardener → excluded from the informal economy because gardener is in formal employment.
- Household informally employs a cook → part of the informal economy because cook is in informal employment.
- Household members provide full-time childcare and receive government compensation but needed to register to receive it → not part of the informal economy because registered.
- Household members using their own labour for other own-final-consumption production that is not registered → part of the informal economy.

### Framework summaries (Boxes)
- Box 1 encapsulates the framework linking:
  - Formal sector: production in the formal sector is never informal; informal activity limited to informal labour inputs of workers engaged by formal entities.
  - Informal sector: all production of informal household unincorporated market enterprises and all labour inputs used to undertake this production are informal.
  - Household own-use production sector: unregistered household own-use production (including informal or temporary NPISHs and direct volunteers) and all labour inputs used to undertake this production are informal; household production engaging informal domestic employees and their labour inputs are informal.
- Box 2 maps the three-sector classification to SNA institutional sectors (non-financial corporations, financial corporations, general government, NPISHs, households), clarifying operational registration criteria and relation to the SNA production boundary and the informal economy.

### Treatment of illegal production (SECTION IV)
- 2008 SNA treatment:
  - “...illegal actions that fit the characteristics of transactions are treated the same way as legal actions.”
  - Market transactions in goods and services that are illegal (for example, narcotics) must be recorded in the accounts if they satisfy the transaction characteristics, including mutual agreement between the parties.
  - If the purpose is to generate income, the illegal nature of the activity may not be a precluding factor for inclusion as production (para. 38).
- Two kinds of illegal production (2008 SNA para. 6.43):
  - a) The production of goods or services whose sale, distribution or possession is forbidden by law.
  - b) Production that is usually legal but becomes illegal when carried out by unauthorized producers.
- Relationship between illegal activities and the informal economy:
  - Most illegal productive activities would be part of the informal economy if principles of informality are applied (para. 40).
  - From a policy perspective, the aim is to stop production of goods or services whose sale, distribution or possession is forbidden by law; policy instruments differ from those used to address informality aimed at formalization or reducing worker vulnerability (para. 40).
  - There is a policy argument to transform production that is usually legal but becomes illegal when carried out by unauthorized producers into legal (formal) production, analogous to transforming informal production activities (para. 41).
  - By convention:
    - Type a) illegal productive activities (production forbidden by law) are excluded from the informal economy and statistics on informality should be supplemented with measures of type a) illegal productive activities (para. 42).
    - Production of goods and services that are usually legal but become illegal when carried out by unauthorized producers should be included in the informal economy (para. 42).

### Overarching clarifications and definitions (SECTION V)
- Key definitional restatements (para. 43):
  - Informal Economy: constituting all informal productive activities carried out by workers or economic units within the general production boundary; includes informal household own-use production of goods and services, informal sector production, and the labour inputs that are used to undertake these types of production, as well as informal labour inputs in the formal sector.
  - Informal household own-use production: all unregistered household production of goods and services, whose sale, distribution and possession is not forbidden by law, that is mainly intended for own final use, except for housing services of owner occupiers, and that is undertaken using the labour inputs of household members or informal domestic employees.
  - Informal sector production: all household production of goods and services whose sale, distribution and possession is not forbidden by law, that is mainly intended for the market and is undertaken by unincorporated household enterprises that are not formally recognized by government authorities by not being registered for tax or similar purposes.
  - Informal labour inputs in the formal sector: all labour inputs of workers in informal employment, of unpaid trainees and volunteers in informal work arrangements and all informal labour inputs of formal employees undertaking the production of goods and services whose sale, distribution and possession is not forbidden by law in the formal sector.
- Terminology and scope clarifications:
  - The use of the term sector in this framework is not fully consistent with the SNA meaning of sector (2008 SNA, para. 25.37), but the established term "informal sector" is retained (para. 44).
  - The framework distinguishes “informal sector” (a component) from the “informal economy” (the overarching concept) (para. 45).
  - The guidance note does not introduce formal definitions of "formal production" or "formal economy" because these terms are not considered analytically useful for the guidance note and would add unnecessary complexity (paras. 46–49).
  - Recommendation: avoid use of the terms "formal production" and "formal economy" within the framework (para. 49).

### Dependent contractors (SECTION VI)
- Definition and characteristics (ICSE-18) (para. 50):
  - Have contractual arrangements of a commercial nature (but not a contract of employment) to provide goods or services for or through another economic unit.
  - Are paid by commercial transactions thus are in employment for profit.
  - Do not have an incorporated enterprise.
  - Are usually responsible for arranging their own social insurance and income tax.
  - Do not employ one or more persons as an employee.
  - Are operationally and/or economically dependent on another entity that exercises control over their productive activities and directly benefits from the work performed by them.
- Classification for sector status (para. 51):
  - Dependent contractors own and operate unincorporated household market enterprises.
  - Registration rules:
    - Registration of the economic unit and registration of the dependent contractor for tax are both sufficient criteria for classifying these unincorporated household market enterprises as formal.
    - If neither the dependent contractor nor the economic unit is registered, the economic unit will be part of the informal sector.

### Other coverage issues (SECTION VII)
- VII.1 Digitalization (paras. 52–56):
  - Digitalization raises concerns about mismeasurement and creates new types of jobs that could be less formal or informal.
  - Many jobs facilitated by digitalization are dependent contractors and are treated as outlined for dependent contractors.
  - Most new forms of dependent contractors facilitated by digitalization are dependent on large formal enterprises that provide a digital intermediation service; ties to the formal economic unit can facilitate some formality for the dependent contractor.
  - Assigning household activities facilitated by digitalization to the informal sector depends on:
    - 1) whether the sale of these goods and services constitutes production,
    - 2) whether the production is done in a household unincorporated enterprise,
    - 3) whether the production is mainly intended for the market, and
    - 4) whether the enterprise is registered for tax or similar purposes (para. 54).
  - Note: The sale of second-hand goods without a trade margin is not considered production (footnote linked to para. 54).
  - It is out of scope for this guidance note to make recommendations on which household activities facilitated by digitalization should be considered production; current SNA definitions should be applied (para. 55).
  - Digital platforms can be a useful source of data on informal activity because they provide a link between formal enterprises and the informal economy (para. 56).
- VII.2 Informal cross border flows (paras. 57–60):
  - Omissions in external sector statistics can be caused by transactions outside the scope of regular statistical enquiries; some omissions may relate to informal economy activities, others to formal enterprise activities that are not captured for practical reasons.
  - Example distinctions:
    - Shuttle trade may fall within the scope of the informal economy and be omitted from merchandise trade statistics if undertaken by unincorporated household enterprises not covered by customs recording.
    - International trade in mobile assets (aircraft, ships) may be omitted from merchandise trade statistics but is undertaken by large formal enterprises and is not within the informal economy.
  - Informal cross border flows pose data collection and estimation challenges because transactions are undertaken by small units and households not covered by regular data collection programmes used for external sector statistics.
  - The framework can be extended to account for external transactions related to informal economy production; these transactions would be primarily recorded in the current account and include:
    - (i) Informal cross border transactions in goods (exports and imports): includes shuttle trade and smuggling of legitimate goods by informal units.
    - (ii) Informal services: includes primarily tourism services such as room rental and informal restaurants and bars; online marketplaces for accommodation rental have allowed households to provide accommodation services to non-residents.
    - (iii) Remittances transmitted through informal channels: workers without access to formal financial units may use informal money transfer systems and may be engaged in informal employment because they may not have appropriate employment permits.
  - Income arising from production in the informal economy may be transmitted as remittances through formal channels and may generate imports of consumer goods and imports of services; households increasingly use digital money transfer systems for remittances and other cross-border transactions (para. 60).
- VII.3 Illicit financial flows (IFFs) (paras. 61–63):
  - The Conceptual Framework for the Statistical Measurement of Illicit Financial Flows (UNODC and UNCTAD, 2020) identifies IFFs as activities considered criminal offences and some behaviours related to tax and commercial practices; it identifies four main types of activities that can generate IFFs:
    - i. tax and commercial activities,
    - ii. illegal markets,
    - iii. corruption, and
    - iv. exploitation-type activities and financing of crime and terrorism (para. 61).
  - IFFs can emerge at two different stages:
    - Illicit income generation: cross-border transactions performed in the context of production of illicit goods and services or that generate illicit income during a non-productive illicit activity.
    - Illicit income management: cross-border transactions that use illicit income to invest in financial and non-financial assets or to consume goods and services (para. 62).
  - Distinctions and treatment:
    - Illicit financial flows should be distinguished from illegal transactions; illegal transactions are treated the same as legal transactions and are included in balance of payments statistics frameworks (para. 63).
    - IFFs are broader and may include illegal transactions at some point, but not all IFFs are transactions and so not all flows would be recorded in macroeconomic statistics (para. 63).
    - Flows arising from exploitation-type activities are not transactions and are therefore excluded from balance of payments statistics because they are not the result of mutual agreement between parties (para. 63).

### Glossary highlights (Annex)
- Work and worker classifications:
  - A job or work activity: a set of tasks and duties performed, or meant to be performed, by one person for a single economic unit; "job" is used in reference to employment.
  - Independent workers: own the economic unit for which they work, control its activities, not accountable to or supervised by other persons, not dependent on a single other economic unit for access to market, raw materials or capital.
  - Dependent workers: do not have complete authority or control over the economic unit for which they work; if in employment for profit they have no employees and do not make the most important decisions.
  - Workers in employment for profit: remuneration directly and entirely dependent on the profit or loss made by the economic unit, including remuneration by way of a commercial transaction for goods or services; do not receive a wage or salary in return for time worked.
  - Workers in employment for pay: receive, or expect to receive, remuneration in cash or in kind, in return for time worked or for each piece or service produced.
  - ICSE-18 classifies jobs in employment for pay or profit into ten detailed categories, including Employers, Independent workers without employees, Dependent contractors, Employees, and Contributing family workers.
- Informal Employment (criteria):
  - Employers and Independent workers without employees:
    - Are and only are in informal employment if they operate and own or co-own an informal household enterprise.
  - Dependent contractors are in informal employment if:
    - a) do not own or co-own a formal economic unit and are not registered for tax and thereby do not have a formal status; or
    - b) own or co-own a formal economic unit or are registered for tax, and thereby have a formal status but without effective access to formal arrangements intended to reduce the economic risk related to the job.
  - Employees are in informal employment if their employment relationship is not in practice formally recognized by the employer in relation to the legal administrative framework and not associated with effective access to formal arrangements such as labour legislation, social protection, income taxation or entitlement to employment benefits; this includes:
    - a) Permanent employees,
    - b) Fixed-term employees,
    - c) Short-term and casual employees,
    - d) Paid apprentices, trainees and interns,
    who do not have access to effective formal arrangements such as statutory social insurance, access to paid annual leave and paid sick leave.
  - Contributing family workers are in informal employment if their job is not in practice formally recognized in relation to the legal administrative framework, including:
    - a) who carry out work for an informal sector enterprise, and
    - b) whose job is not registered for job-related statutory social insurance, or for whom contributions are not made to job-related statutory social insurance.
- Informal forms of work other than employment:
  - Direct volunteering is always informal.
  - Organization-based volunteer work is informal if carried out for:
    - a) An informal NPISH or an informal sector enterprise; or
    - b) For or through a formal economic unit when the volunteer is not covered by formal arrangements that aim to protect the worker.
  - Unpaid trainee work is informal if it is not effectively covered by formal arrangements aiming to protect the worker.
  - Own-use production work is informal if not effectively covered by formal arrangements that aim to promote or facilitate the work and protect and regulate the worker.
- Other reference concepts:
  - Informal or temporary NPISHs are defined in the 2008 SNA (paras. 23.42 and 4.168) as groups of households that pool resources of knowledge and volunteer labour to serve their local community; their output is treated as own-account production and part of the household institutional sector; services provided by informal or temporary NPISHs are outside of the SNA production boundary.
  - Direct volunteering is defined in the Handbook Satellite Account on Non-profit and Related Institutions and Volunteer Work as volunteer work performed outside organizations and is treated as an activity in the household institutional sector; services provided by direct volunteers are outside of the SNA production boundary.
  - Housing services of owner-occupiers are included in the SNA production boundary; persons who own dwellings in which they live are treated as owning unincorporated enterprises that produce housing services consumed by the household; the housing services produced are deemed equal in value to market rentals for similar accommodation, taking into account taxes paid on housing (cf., 2008 SNA 9.65).
  - The SNA production boundary excludes most services produced by households for their own use (except owner-occupier housing services) if households do not engage employees; the General production boundary (2008 SNA 6.25) does not exclude these services.

*Source: IMF guidance note on the informal economy.*

### SECTION I: OVERVIEW

### SECTION I: OVERVIEW

### Purpose and scope
- The guidance note aims to:
  - present recommendations for a coherent set of statistical recommendations necessary for measurement of work and economic activity in the informal economy; and
  - identify and delineate the statistical issues on the informal economy that should be addressed as part of the update of the System of National Accounts 2008 (2008 SNA) and the Balance of Payments and International Investment Position Manual, sixth edition (BPM6).
- Conceptual guidance in the note will be complemented with a supplementary note on proposed practical guidance which will include tables and recommended indicators to present statistics on the informal economy.

### Policy needs for a statistical framework
- Interest in the informal economy continues to attract considerable attention, with new informal types of economic activities emerging that create new types of jobs that could be characterized as less formal or informal.
- Key policy implications:
  - Informal production activities provide employment and income to many people who might otherwise be unemployed.
  - Informal workers and enterprises are less protected against negative economic shocks, often associated with lower and uncertain income, with broader consequences for inequality and poverty.
  - Quantification of the informal economy and data on its characteristics are needed for designing, implementing, monitoring and analyzing macro-economic and social policies and to assess their impact.

### Delineation: non‑observed economy versus informal economy
- The non-observed economy:
  - Includes economic activities that, for various reasons, are not captured in regular statistical enquiries.
  - Is a pragmatic term used in the context of achieving exhaustive statistics and may vary between countries.
  - Provides tools to exhaustively include production in the informal sector, illegal production, underground production, household production for own final use within the SNA production boundary, and other production not covered due to deficiencies in the data collection programme.
  - Many countries using these frameworks do not publish details of their adjustments, nor an overall measure of the non-observed economy.
- Overlap and distinction:
  - The informal economy and the non-observed economy have considerable overlaps, but each may include elements not in the other (example: undeclared and underdeclared production of registered economic units is relevant to the non-observed economy but not part of the informal economy).
  - The primary difference in purpose:
    - Frameworks for the non-observed economy aim to achieve exhaustive measures of production.
    - The framework for the informal economy aims to ensure consistent measures of informal production and informal labour inputs to inform policy decisions to formalize economic units and reduce vulnerability of informal workers.

### Informal economy in the 2008 SNA and the ILO framework
- The 2008 SNA:
  - Established the connection between work on the informal sector, the informal economy, and integration in the national accounts.
  - Recognizes two separate goals for measuring potentially unregulated or uncovered activities (2008 SNA para. 25.1):
    - a complete view of the economy comparable over time and across economies; and
    - the analytical importance, especially in developing countries, of measuring effort by people without formal jobs to engage in monetary economic activity (2008 SNA, para 25.3).
  - Neither the 2008 SNA nor ILO resolutions provide a comprehensive set of statistical recommendations or framework for the informal economy.
- ILO activity:
  - ILO standards for the two main components of the informal economy (informal sector and informal employment) were adopted at the International Conference of Labour Statisticians (ICLS) in 1993 and 2003 (ILO, 1993, 2003).
  - ILO has a policy definition of the informal economy covering all productive activities by workers and economic units that are—in law and in practice—not covered by formal arrangements (ILO, 2002).
  - The ICLS in 2018 decided to update the standards to address known problems and ensure alignment with latest labour market standards; an ILO working group was formed in 2019 and has made substantial progress in developing a comprehensive set of statistics on the informal economy that forms the basis for the framework in the guidance note.
- 2008 SNA update:
  - Considers an increased focus on household production of services for own use as part of work to better reflect Wellbeing issues in the SNA; such household production is typically not covered by formal arrangements and should be reflected in a complete framework for the informal economy.

### Proposed statistical framework: overview
- Objective: present a consistent and coherent set of statistical concepts and definitions relating to the informal economy across national accounts, external sector statistics and labour statistics that are acceptable to labour statisticians and macroeconomic statisticians.
- Rationale: current statistical recommendations partially cover informality (e.g., informal sector, informal employment) but lack a comprehensive framework to understand scope and relationships among components of informality.
- Approach: focus on the perspective of the economic unit and its relation to informal productive activities and the informal economy.

### Core definitions
- Informal productive activities:
  - Defined as all productive activities carried out by persons or economic units that are – in law or in practice – not covered by formal arrangements.
  - Serves as an underlying concept linking the perspective of workers (informal labour inputs) and economic units (informal production).
- Informal economy:
  - Defined as constituting all informal productive activities carried out by workers or economic units within the general production boundary.

### Allocation of economic units and identification of informal activities
- Step 1: assign all economic units to one of three sectors depending on intended destination of production and formal status of the economic unit:
  - Formal sector
  - Informal sector
  - Household own-use production sector
- Step 2: identify productive activities (production and labour inputs) that are informal and thus part of the informal economy.

### Formal sector: scope and informal elements
- Composition:
  - Includes economic units that are formally recognized as producers of goods and services: corporations and quasi-corporations, government units, NPISHs and household unincorporated market enterprises that are registered for tax or similar purposes.
- Key points:
  - Production carried out by economic units in the formal sector, including undeclared and underdeclared production, is not part of the informal economy.
  - Formal economic units can use informal labour inputs for production; these labour inputs are part of the informal economy.
  - All independent workers in the formal sector are formal workers.
  - Dependent workers in employment, unpaid trainees and volunteers can be informal.
  - All labour inputs of informal workers are informal; workers in formal employment can provide informal labour inputs (e.g., when income and hours worked are not declared).
  - Data on informal labour inputs in the formal sector are compiled from a labour statistics perspective.

### Informal sector: scope and operational rules
- Definition:
  - A subsector of the household institutional sector comprising all household unincorporated market enterprises that are not formally recognized by government authorities because they are not registered for tax or similar purposes.
  - These informal household unincorporated market enterprises may be called informal enterprises.
- Key points:
  - All production within the informal sector is part of the informal economy.
  - The informal sector includes agricultural production of unincorporated household enterprises if the registration criteria above are met (departure from current ILO definition).
  - Enterprise size should not be used to classify unincorporated household enterprises as informal (departure from current operationalization).
  - A single household can carry out more than one type of market production not registered for tax; such activities should be identified as separate informal enterprises if feasible and relevant.
  - All workers engaged in informal enterprises are informal workers; therefore all labour inputs in the informal sector are informal.

### Household own-use production sector: scope and informal elements
- Composition:
  - Includes all households producing goods and services mainly intended for own final consumption.
- Key points:
  - Includes production of informal or temporary NPISHs, and direct volunteer work.
  - Extends beyond the SNA production boundary by including production of services by households for own use, direct volunteering and services produced by informal NPISHs.
  - Production of informal or temporary NPISHs and direct volunteer work is always informal.
  - Housing services of owner-occupiers are by convention excluded from the informal economy, as no informal labour inputs are used for this production activity.
  - Household own-use production other than the exceptions noted is mostly informal, though exceptions exist (e.g., own-use production registered to qualify for government compensation is not informal).
  - Own-use production undertaken through the labour of a domestic employee is informal only if the employee is in informal employment.
  - For analysis it may be helpful to separately identify production of services by informal or temporary NPISHs and direct volunteer work, and other informal household production without domestic employees.

### Illustrative examples of household own-use classification
- Examples provided:
  - Free childcare to neighbours (direct volunteers) → part of the informal economy.
  - Owner-occupier living in own home (housing services) → not part of the informal economy.
  - Household formally employs a gardener → excluded from the informal economy because gardener is in formal employment.
  - Household informally employs a cook → part of the informal economy because cook is in informal employment.
  - Household members provide full-time childcare and receive government compensation but needed to register to receive it → not part of the informal economy because registered.
  - Household members using their own labour for other own-final-consumption production that is not registered → part of the informal economy.

### Framework summaries (Boxes)
- Box 1 encapsulates the framework linking:
  - Formal sector: production in the formal sector is never informal; informal activity limited to informal labour inputs of workers engaged by formal entities.
  - Informal sector: all production of informal household unincorporated market enterprises and all labour inputs used to undertake this production are informal.
  - Household own-use production sector: unregistered household own-use production (including informal or temporary NPISHs and direct volunteers) and all labour inputs used to undertake this production are informal; household production engaging informal domestic employees and their labour inputs are informal.
- Box 2 maps the three-sector classification to SNA institutional sectors (non-financial corporations, financial corporations, general government, NPISHs, households), clarifying operational registration criteria and relation to the SNA production boundary and the informal economy.

*Source: IMF guidance note on the informal economy (SECTION I: OVERVIEW).*

### SECTION IV: ILLEGAL ACTIVITIES

### SECTION IV: ILLEGAL ACTIVITIES

### Treatment of illegal production under the 2008 SNA
- The 2008 SNA states, “...illegal actions that fit the characteristics of transactions are treated the same way as legal actions.”  
- Market transactions in goods and services that are illegal (for example, narcotics) must be recorded in the accounts if they satisfy the transaction characteristics, including mutual agreement between the parties.  
- If the purpose is to generate income, the illegal nature of the activity may not be a precluding factor for inclusion as production (para. 38).

### Two kinds of illegal production (2008 SNA para. 6.43)
- a) The production of goods or services whose sale, distribution or possession is forbidden by law.  
- b) Production that is usually legal but becomes illegal when carried out by unauthorized producers.

### Relationship between illegal activities and the informal economy
- Most illegal productive activities would be part of the informal economy if principles of informality are applied (para. 40).  
- From a policy perspective, the aim is to stop production of goods or services whose sale, distribution or possession is forbidden by law; policy instruments differ from those used to address informality aimed at formalization or reducing worker vulnerability (para. 40).  
- There is a policy argument to transform production that is usually legal but becomes illegal when carried out by unauthorized producers into legal (formal) production, analogous to transforming informal production activities (para. 41).  
- By convention:
  - Type a) illegal productive activities (production forbidden by law) are excluded from the informal economy and statistics on informality should be supplemented with measures of type a) illegal productive activities (para. 42).  
  - Production of goods and services that are usually legal but become illegal when carried out by unauthorized producers should be included in the informal economy (para. 42).

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### SECTION V: OVERARCHING CLARIFICATIONS AND REMARKS ON THE FRAMEWORK

### Definitions derived from the framework (as presented in section III.1 and following clarifications)
- Informal Economy:
  - The informal economy is defined as constituting all informal productive activities carried out by workers or economic units within the general production boundary; this includes informal household own-use production of goods and services, informal sector production, and the labour inputs that are used to undertake these types of production, as well as informal labour inputs in the formal sector (para. 43).
- Informal household own-use production:
  - Consists of all unregistered household production of goods and services, whose sale, distribution and possession is not forbidden by law, that is mainly intended for own final use, except for housing services of owner occupiers, and that is undertaken using the labour inputs of household members or informal domestic employees (para. 43).
- Informal sector production:
  - Includes all household production of goods and services whose sale, distribution and possession is not forbidden by law, that is mainly intended for the market and is undertaken by unincorporated household enterprises that are not formally recognized by government authorities by not being registered for tax or similar purposes (para. 43).
- Informal labour inputs in the formal sector:
  - Include all labour inputs of workers in informal employment, of unpaid trainees and volunteers in informal work arrangements and all informal labour inputs of formal employees undertaking the production of goods and services whose sale, distribution and possession is not forbidden by law in the formal sector (para. 43).

### Terminology and scope clarifications
- The use of the term sector in this framework is not fully consistent with the SNA meaning of sector (2008 SNA, para. 25.37), but the established term "informal sector" is retained (para. 44).  
- The framework distinguishes “informal sector” (a component) from the “informal economy” (the overarching concept) (para. 45).  
- The guidance note does not introduce formal definitions of "formal production" or "formal economy" because these terms are not considered analytically useful for the guidance note and would add unnecessary complexity (paras. 46–49).  
- Recommendation: avoid use of the terms "formal production" and "formal economy" within the framework (para. 49).

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### SECTION VI: THE TREATMENT OF DEPENDENT CONTRACTORS

### Definition and characteristics (ICSE-18)
- Dependent contractors are a new employment status category introduced in the revised International Classification of Status in Employment (ICSE-18) adopted by the 20th International Conference of Labour Statisticians (ICLS) (para. 50).  
- Characteristic features of dependent contractors:
  - Have contractual arrangements of a commercial nature (but not a contract of employment) to provide goods or services for or through another economic unit.  
  - Are paid by commercial transactions thus are in employment for profit.  
  - Do not have an incorporated enterprise.  
  - Are usually responsible for arranging their own social insurance and income tax.  
  - Do not employ one or more persons as an employee.  
  - Are operationally and/or economically dependent on another entity that exercises control over their productive activities and directly benefits from the work performed by them (para. 50).

### Classification of dependent contractors for sector status
- Dependent contractors own and operate unincorporated household market enterprises (para. 51).  
- Registration rules:
  - Registration of the economic unit and registration of the dependent contractor for tax are both sufficient criteria for classifying these unincorporated household market enterprises as formal (para. 51).  
  - If neither the dependent contractor nor the economic unit is registered, the economic unit will be part of the informal sector (para. 51).

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### SECTION VII: OTHER ISSUES TO CONSIDER WHEN ADDRESSING COVERAGE OF THE INFORMAL ECONOMY

### VII.1 Digitalization
- Digitalization has penetrated many aspects of economic activity and raises concerns about mismeasurement of economic activity; new types of economic activities—some informal—use digital technologies and create new types of jobs that could be less formal or informal in nature (para. 52).  
- Many jobs facilitated by digitalization are dependent contractors and are treated as outlined for dependent contractors (para. 52).  
- Most new forms of dependent contractors facilitated by digitalization are dependent on large formal enterprises that provide a digital intermediation service; ties to the formal economic unit can facilitate some formality for the dependent contractor (para. 53).  
- Digitalization facilitates household participation in production activities that can be part of the informal sector/informal economy (for example, through digital marketplaces). Assigning these household activities to the informal sector depends on:
  - 1) whether the sale of these goods and services constitutes production,  
  - 2) whether the production is done in a household unincorporated enterprise,  
  - 3) whether the production is mainly intended for the market, and  
  - 4) whether the enterprise is registered for tax or similar purposes (para. 54).  
- Note: The sale of second-hand goods without a trade margin is not considered production (footnote linked to para. 54).  
- It is out of scope for this guidance note to make recommendations on which household activities facilitated by digitalization should be considered production; current SNA definitions should be applied (para. 55).  
- Digital platforms can be a useful source of data on informal activity because they provide a link between formal enterprises and the informal economy (para. 56).

### VII.2 Informal cross border flows
- Omissions in external sector statistics can be caused by transactions outside the scope of regular statistical inquiries; some omissions may relate to informal economy activities, others to formal enterprise activities that are not captured for practical reasons (para. 57).  
- Example distinctions:
  - Shuttle trade may fall within the scope of the informal economy and be omitted from merchandise trade statistics if undertaken by unincorporated household enterprises not covered by customs recording.  
  - International trade in mobile assets (aircraft, ships) may be omitted from merchandise trade statistics but is undertaken by large formal enterprises and is not within the informal economy (para. 57).  
- Informal cross border flows pose data collection and estimation challenges because transactions are undertaken by small units and households not covered by regular data collection programmes used for external sector statistics (para. 58).  
- The framework can be extended to account for external transactions related to informal economy production; these transactions would be primarily recorded in the current account and include:
  - (i) Informal cross border transactions in goods (exports and imports): includes shuttle trade and smuggling of legitimate goods by informal units (para. 59).  
  - (ii) Informal services: includes primarily tourism services such as room rental and informal restaurants and bars; online marketplaces for accommodation rental have allowed households to provide accommodation services to non-residents (para. 59).  
  - (iii) Remittances transmitted through informal channels: workers without access to formal financial units may use informal money transfer systems and may be engaged in informal employment because they may not have appropriate employment permits (para. 59).  
- Income arising from production in the informal economy may be transmitted as remittances through formal channels and may generate imports of consumer goods and imports of services; households increasingly use digital money transfer systems for remittances and other cross-border transactions (para. 60).

### VII.3 Illicit financial flows (IFFs)
- The Conceptual Framework for the Statistical Measurement of Illicit Financial Flows (UNODC and UNCTAD, 2020) identifies IFFs as activities considered criminal offences and some behaviours related to tax and commercial practices; it identifies four main types of activities that can generate IFFs:
  - i. tax and commercial activities,  
  - ii. illegal markets,  
  - iii. corruption, and  
  - iv. exploitation-type activities and financing of crime and terrorism (para. 61).
- IFFs can emerge at two different stages:
  - Illicit income generation: cross-border transactions performed in the context of production of illicit goods and services or that generate illicit income during a non-productive illicit activity.  
  - Illicit income management: cross-border transactions that use illicit income to invest in financial and non-financial assets or to consume goods and services (para. 62).
- Distinctions and treatment:
  - Illicit financial flows should be distinguished from illegal transactions; illegal transactions are treated the same as legal transactions and are included in balance of payments statistics frameworks (para. 63).  
  - IFFs are broader and may include illegal transactions at some point, but not all IFFs are transactions and so not all flows would be recorded in macroeconomic statistics (para. 63).  
  - Flows arising from exploitation-type activities are not transactions and are therefore excluded from balance of payments statistics because they are not the result of mutual agreement between parties (para. 63).

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### Annex: Glossary of relevant reference concepts (selected highlights)

### Work and worker classifications
- A job or work activity: a set of tasks and duties performed, or meant to be performed, by one person for a single economic unit; "job" is used in reference to employment (Annex).  
- Independent workers: own the economic unit for which they work, control its activities, not accountable to or supervised by other persons, not dependent on a single other economic unit for access to market, raw materials or capital (Annex).  
- Dependent workers: do not have complete authority or control over the economic unit for which they work; if in employment for profit they have no employees and do not make the most important decisions (Annex).  
- Workers in employment for profit: remuneration directly and entirely dependent on the profit or loss made by the economic unit, including remuneration by way of a commercial transaction for goods or services; do not receive a wage or salary in return for time worked (Annex).  
- Workers in employment for pay: receive, or expect to receive, remuneration in cash or in kind, in return for time worked or for each piece or service produced (Annex).  
- The International Classification of Status in Employment (ICSE-18) classifies jobs in employment for pay or profit into ten detailed categories, including Employers, Independent workers without employees, Dependent contractors, Employees, and Contributing family workers (Annex).

### Informal Employment (criteria)
- Employers and Independent workers without employees:
  - Are and only are in informal employment if they operate and own or co-own an informal household enterprise (Annex).
- Dependent contractors are in informal employment if:
  - a) do not own or co-own a formal economic unit and are not registered for tax and thereby do not have a formal status; or  
  - b) own or co-own a formal economic unit or are registered for tax, and thereby have a formal status but without effective access to formal arrangements intended to reduce the economic risk related to the job (Annex).
- Employees are in informal employment if their employment relationship is not in practice formally recognized by the employer in relation to the legal administrative framework and not associated with effective access to formal arrangements such as labour legislation, social protection, income taxation or entitlement to employment benefits; this includes:
  - a) Permanent employees,  
  - b) Fixed-term employees,  
  - c) Short-term and casual employees,  
  - d) Paid apprentices, trainees and interns,  
  who do not have access to effective formal arrangements such as statutory social insurance, access to paid annual leave and paid sick leave (Annex).
- Contributing family workers are in informal employment if their job is not in practice formally recognized in relation to the legal administrative framework, including:
  - a) who carry out work for an informal sector enterprise, and  
  - b) whose job is not registered for job-related statutory social insurance, or for whom contributions are not made to job-related statutory social insurance (Annex).

### Informal forms of work other than employment
- Direct volunteering is always informal (Annex).  
- Organization-based volunteer work is informal if carried out for:
  - a) An informal NPISH or an informal sector enterprise; or  
  - b) For or through a formal economic unit when the volunteer is not covered by formal arrangements that aim to protect the worker (Annex).  
- Unpaid trainee work is informal if it is not effectively covered by formal arrangements aiming to protect the worker (Annex).  
- Own-use production work is informal if not effectively covered by formal arrangements that aim to promote or facilitate the work and protect and regulate the worker (Annex).

### Other reference concepts
- Informal or temporary NPISHs are defined in the 2008 SNA (paras. 23.42 and 4.168) as groups of households that pool resources of knowledge and volunteer labour to serve their local community; their output is treated as own-account production and part of the household institutional sector; services provided by informal or temporary NPISHs are outside of the SNA production boundary (Annex).  
- Direct volunteering is defined in the Handbook Satellite Account on Non-profit and Related Institutions and Volunteer Work as volunteer work performed outside organizations and is treated as an activity in the household institutional sector; services provided by direct volunteers are outside of the SNA production boundary (Annex).  
- Housing services of owner-occupiers are included in the SNA production boundary; persons who own dwellings in which they live are treated as owning unincorporated enterprises that produce housing services consumed by the household; the housing services produced are deemed equal in value to market rentals for similar accommodation, taking into account taxes paid on housing (cf., 2008 SNA 9.65) (Annex).  
- The SNA production boundary excludes most services produced by households for their own use (except owner-occupier housing services) if households do not engage employees; the General production boundary (2008 SNA 6.25) does not exclude these services (Annex).

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_Source: https://www.imf.org/-/media/files/data/statistics/bpm6/approved-guidance-notes/ie1-informal-economy-endorsed.pdf_