## Informal Economy Task Team (IETT): Concept Note

## Source details

**Canonical URL:** [Informal Economy Task Team (IETT): Concept Note](https://www.imf.org/-/media/files/data/statistics/bpm6/iett/iett-concept-note.pdf)

## Other formats

- [Markdown version](/-/media/files/data/statistics/bpm6/iett/iett-concept-note.pdf.md)
- [Structured JSON version](/-/media/files/data/statistics/bpm6/iett/iett-concept-note.pdf.json)

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### Overview and objectives
- The Joint Informal Economy Task Team (IETT) will prepare guidance to define and operationalize concepts necessary to measure productive activity, including cross-border transactions, in the informal economy as part of the updates to the System of National Accounts 2008 (2008 SNA) and the Balance of Payments Manual, sixth edition (BPM6).
- Rationale described by the IETT:
  - The 2008 SNA established the connection between work on the informal sector, the informal economy, and their integration in the national accounts.
  - Informal jobs provide employment and income but are often associated with lower and uncertain income and less protection against negative economic shocks, as evidenced in the ongoing COVID-19 pandemic (ILO Brief, May 2020).
  - Quantification and characterization of the informal economy are needed for designing, implementing, monitoring and analysing macroeconomic and social policies and to assess their impact.
- Expected contributions:
  - Guidance will account for country practices, increase coverage and harmonization of statistics on the informal economy, and contribute to updates of 2008 SNA and BPM6 and the ILO’s revision of standards for statistics on informality.

### Proposed workstreams and guidance outputs
- The IETT envisions three workstreams:
  - (i) Developing a common/integrated conceptual and operational definition of the informal economy, taking account of various concepts of informality.
  - (ii) Recommending methods to classify and measure the informal economy, including cross-border transactions.
  - (iii) Developing relevant presentational frameworks.
- Specific guidance notes the IETT will prepare:
  - An overarching guidance note on:
    - Statistical framework and classification of informal economy (including identifying aspects of the informal economy in existing classification systems; and addressing the gaps).
    - Cross-cutting issues, including the delineation of illegal/underground/non-observed activities and the delineation of formal/informal/own final use production/non-profit institutions in the economy.
  - Guidance on measurement:
    - Measuring the informal cross-border transactions.
    - Digitalization and the informal economy: data collection from digital platforms in collaboration with the Digitalization task team.
  - Guidance on presentation:
    - Presentation in the system of national accounts and the external sector statistics to ensure users have a clear understanding of the informal economy and its evolution.

### Conceptual and operational definition: key points
- Measurement challenges:
  - The term "informality" is used interchangeably with other terms and may describe activities, employment, non-observed economy, production outside the regulated economy, or household production; it is sometimes used interchangeably with "informal sector".
  - The literature contains varied definitions:
    - Smith (1987): activities that elude the national accounts because counting mechanisms do not detect them.
    - Giles (1999): similar to the "hidden economy".
    - Tanzi (1983): excludes illegal activities when estimating the "underground" economy.
    - Feige (1990, 2015): taxonomy of the underground economy with four types—illegal economy; unreported economy; unrecorded economy; and informal economy (circumvention of labor market regulations).
    - Medina and Schneider (2019): define the shadow economy as synonymous with the informal economy, including all economic activities hidden from official authorities for monetary, regulatory, and institutional reasons.
- Dual goals recognized in 2008 SNA (para. 25.1):
  - First, ensure all activities including "hidden" or "underground" are encompassed in measures of total activity (non-observed economy).
  - Second, define and measure the subset of economic units that can be considered "informal".
- Current gaps:
  - Neither 2008 SNA nor the ILO provide a statistical definition or framework for the informal economy suitable across datasets.
  - Policy-driven indirect macro estimation methods are used to address statistical measurement gaps; a statistical concept is needed to capture productive activities and work relationships not formally recognized.
- Alignment and inputs:
  - The proposed IETT framework will build on the ILO Working Group for the Revision of the Statistical Standards of Informality (informal productive activities, informal sector, informal work, informal employment).

### Measurement: issues and considerations
- Existing guidance:
  - 2008 SNA (para. 25.81–25.82) and the ILO handbook on measuring informality (ILO, 2013) outline statistical approaches; choice of method depends on how established data collection is for activities of interest.
- Coverage and comparability:
  - A consistent measurement approach across countries is needed to ensure comparable assessments of economic performance.
  - It is commonly assumed that a large part of informal productive activities is not captured in official GDP statistics because countries do not separately publish such estimates.
- Informal cross-border transactions and external accounts:
  - Informal cross-border transactions mainly affect the current account and may include hidden or illegal transactions (e.g., shuttle trade, smuggling).
  - Households may produce tourism services for non-residents (vacation rental services, small eating establishments).
  - Remittances may be transmitted via informal channels (e.g., the informal "hawala" system predominantly used in the Middle East and South Asia).
  - Omission of informal cross-border transactions and positions outside regular statistical inquiries may affect coverage of international accounts.
  - Workers in informal employment may also transmit remittances through formal channels; income from the informal economy may generate imports of consumer goods and services.
- Digitalization:
  - Rapid digitalization raises concerns about mismeasurement of economic activity.
  - Increasing household participation in production facilitated by digitalization suggests household and enterprise surveys may need transformation to collect comprehensive information on household production.
  - Digital platforms can be a useful source of data on informal activity by linking formal enterprises and the informal economy.

### Presentational framework: design principles
- Data and usability:
  - A nuanced understanding of the informal economy requires better data and identification of best practices in data collection.
  - Practical guidance should account for the technical and resource availability of countries with the greatest need for estimating the informal economy.
- Consistency and flexibility:
  - A framework should support consistency across datasets while remaining flexible enough to meet diverse analytical and policy needs.
  - Statistical standards should allow alternative presentations of underlying accounting frameworks to enable robust presentation of the informal economy while remaining internally consistent and integrated.
  - Presentation requires articulating how aspects of the informal economy may be identified in existing classifications and accounts or developing special classifications and accounts.

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_Source: https://www.imf.org/-/media/files/data/statistics/bpm6/iett/iett-concept-note.pdf_