{
  "title": "What is the Informal Economy?",
  "sourceUrl": "https://www.imf.org/en/publications/fandd/issues/2020/12/what-is-the-informal-economy-basics",
  "canonical": "https://www.imf.org/en/publications/fandd/issues/2020/12/what-is-the-informal-economy-basics",
  "overlayPath": "/en/publications/fandd/issues/2020/12/what-is-the-informal-economy-basics/index.md",
  "summary": "Having fewer workers outside the formal economy can support sustainable development, writes the IMF’s Corinne Deléchat and Leandro Medina.",
  "sections": [
    {
      "heading": "Overview and scale",
      "content": "- The informal economy comprises activities that have market value and would add to tax revenue and GDP if they were recorded.\n- According to the International Labour Organization, about 2 billion workers, or 60 percent of the world’s employed population ages 15 and older, spend at least part of their time in the informal sector.\n- The informal sector slowly decreases as economies develop, but with wide variations across regions and countries.\n- Today, the informal sector still accounts for about a third of low- and middle-income countries’ economic activity and 15 percent in advanced economies."
    },
    {
      "heading": "Causes and forms of informality",
      "content": "- Informality covers a wide range of situations within and across countries and arises for a number of reasons:\n  - Voluntary avoidance: individuals and firms may choose to remain outside the formal economy to avoid taxes and social contributions or compliance with standards and licensing requirements.\n  - Safety-net and access constraints: individuals may rely on informal activities because they lack education and skills for formal employment or are too poor to access public and financial services.\n- Informality is a response to a set of country-specific characteristics and institutions; there is no one-size-fits-all solution."
    },
    {
      "heading": "Economic and social consequences",
      "content": "- Fiscal and growth impacts:\n  - Informal firms do not contribute to the tax base and tend to remain small, with low productivity and limited access to finance.\n  - Economic growth in regions or countries with large informal sectors remains below potential.\n- Poverty and inequality:\n  - Informal workers are more likely to be poor than workers in the formal sector because they lack formal contracts and social protection and tend to be less educated.\n  - The prevalence of informal work is associated with high inequality: workers with similar skills tend to earn less in the informal sector than their formal-sector peers, and the wage gap between formal and informal workers is higher at lower skill levels.\n  - The large decline in informality in Latin America over the past 20 years was associated with significant reductions in inequality.\n- Gender dimensions:\n  - In two out of three low- and lower-middle-income countries, women are more likely than men not only to be in informal employment, but also to be in the most precarious and low-paying categories of informal employment.\n- COVID-19 implications:\n  - The COVID-19 pandemic’s crushing impact on informal activities worldwide highlighted the need for governments to provide a lifeline for large segments of the population not covered (or not well covered) by existing social protection programs."
    },
    {
      "heading": "Policy guidance and effective interventions",
      "content": "- Guiding principles: extensive research and policy experiments point to a common set of guiding principles despite country-specific differences.\n- Four types of policies that have proved effective:\n  - Improving access to and quality of education:\n    - Education reforms that enhance equality of access and ensure that students remain in school until the end of the secondary cycle.\n    - Ample technical and vocational training opportunities.\n    - Described as \"probably the single most powerful way to lower informality.\"\n  - Tax system design and social protection:\n    - Tax design should avoid inadvertently increasing incentives to remain informal.\n    - Simpler value-added and corporate tax systems (with no or minimal exemptions and loopholes) with lower rates, as well as low payroll taxes, help reduce informality.\n    - Supportive social protection systems, including progressive income taxes and protection for the poorest, help address distributional aspects.\n  - Financial inclusion:\n    - Policies to enhance financial inclusion by promoting expanded access to formal (or bank-based) financial services can help lower informality.\n    - Lack of access to finance is a key constraint for informal firms and entrepreneurs, stifling productivity and business growth.\n    - Countries where access to finance is greater tend to grow faster and have lower income inequality.\n  - Structural and regulatory reforms:\n    - Labor market regulations can be simplified to ensure greater flexibility and facilitate informal workers’ entry into formal employment.\n    - Competition policy can boost entry of small firms in some sectors by eliminating monopolies.\n    - Elimination of excessive regulations and bureaucratic requirements also helps.\n    - Digital platforms, including government-to-person mobile transfers, can bring financial accounts to the unbanked, empower women financially, and help small and medium-sized enterprises grow within the formal sector."
    },
    {
      "heading": "Policy implications and trajectory",
      "content": "- Informality critically affects how fast economies can grow, develop, and provide decent economic opportunities.\n- Sustainable development requires a reduction in informality over time, but this process will inevitably be gradual because the informal sector is currently the only viable income source for billions of people.\n- Informality is best tackled by steady reforms—such as investment in education—and policies that address its underlying causes.\n- Approaches focused on attacking the sector as generally illegal and tax-evading are not the recommended solution.\n\nSource: F&D Magazine — \"What Is the Informal Economy?\" CORINNE DELÉCHAT and LEANDRO MEDINA, December 2020.\n\n---\n\n Content in this bundle\n\n- عودة إلى الأسس - ما هو الاقتصاد غير الرسمي؟\n  - عودة إلى الأسس - ما هو الاقتصاد غير الرسمي؟ (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - عودة إلى الأسس - ما هو الاقتصاد غير الرسمي؟ (PDF){rel=\"external\" type=\"application/pdf\"}\n- Vuelta a lo esencial: ¿Qué es la economía informal? ● Finanzas y Desarrollo ● Diciembre de 2020\n  - Vuelta a lo esencial: ¿Qué es la economía informal? ● Finanzas y Desarrollo ● Diciembre de 2020 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Vuelta a lo esencial: ¿Qué es la economía informal? ● Finanzas y Desarrollo ● Diciembre de 2020 (PDF){rel=\"external\" type=\"application/pdf\"}\n- Qu’est-ce que l’économie informelle ?\n  - Qu’est-ce que l’économie informelle ? (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Qu’est-ce que l’économie informelle ? (PDF){rel=\"external\" type=\"application/pdf\"}\n- What is the Informal Economy? – IMF F&D\n  - What is the Informal Economy? – IMF F&D (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - What is the Informal Economy? – IMF F&D (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/fandd/issues/2020/12/what-is-the-informal-economy-basics"
    }
  ],
  "bullets": [
    "[Markdown version](/en/publications/fandd/issues/2020/12/what-is-the-informal-economy-basics/index.md)",
    "[Structured JSON version](/en/publications/fandd/issues/2020/12/what-is-the-informal-economy-basics/index.json)",
    "[Bundle manifest](/en/publications/fandd/issues/2020/12/what-is-the-informal-economy-basics/bundle-manifest.json)",
    "Authors: CORINNE DELECHAT, LEANDRO MEDINA",
    "Published: December 1, 2020",
    "The informal economy comprises activities that have market value and would add to tax revenue and GDP if they were recorded.",
    "According to the International Labour Organization, about 2 billion workers, or 60 percent of the world’s employed population ages 15 and older, spend at least part of their time in the informal sector.",
    "The informal sector slowly decreases as economies develop, but with wide variations across regions and countries.",
    "Today, the informal sector still accounts for about a third of low- and middle-income countries’ economic activity and 15 percent in advanced economies.",
    "Informality covers a wide range of situations within and across countries and arises for a number of reasons:",
    "Informality is a response to a set of country-specific characteristics and institutions; there is no one-size-fits-all solution.",
    "Fiscal and growth impacts:",
    "Poverty and inequality:",
    "Gender dimensions:",
    "COVID-19 implications:",
    "Guiding principles: extensive research and policy experiments point to a common set of guiding principles despite country-specific differences.",
    "Four types of policies that have proved effective:",
    "Informality critically affects how fast economies can grow, develop, and provide decent economic opportunities.",
    "Sustainable development requires a reduction in informality over time, but this process will inevitably be gradual because the informal sector is currently the only viable income source for billions of people.",
    "Informality is best tackled by steady reforms—such as investment in education—and policies that address its underlying causes.",
    "Approaches focused on attacking the sector as generally illegal and tax-evading are not the recommended solution.",
    "**عودة إلى الأسس - ما هو الاقتصاد غير الرسمي؟**",
    "**Vuelta a lo esencial: ¿Qué es la economía informal? ● Finanzas y Desarrollo ● Diciembre de 2020**",
    "**Qu’est-ce que l’économie informelle ?**",
    "**What is the Informal Economy? – IMF F&D**"
  ],
  "related": [
    {
      "title": "عودة إلى الأسس - ما هو الاقتصاد غير الرسمي؟",
      "role": "document",
      "sourceUrl": "https://www.imf.org/-/media/files/publications/fandd/article/2020/december/ar/basics.pdf",
      "summary": {
        "path": "/-/media/files/publications/fandd/article/2020/december/ar/basics.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/files/publications/fandd/article/2020/december/ar/basics.pdf",
        "mime": "application/pdf"
      }
    },
    {
      "title": "Vuelta a lo esencial: ¿Qué es la economía informal? ● Finanzas y Desarrollo ● Diciembre de 2020",
      "role": "document",
      "sourceUrl": "https://www.imf.org/-/media/files/publications/fandd/article/2020/december/es/what-is-the-informal-economy-basics.pdf",
      "summary": {
        "path": "/-/media/files/publications/fandd/article/2020/december/es/what-is-the-informal-economy-basics.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/files/publications/fandd/article/2020/december/es/what-is-the-informal-economy-basics.pdf",
        "mime": "application/pdf"
      }
    },
    {
      "title": "Qu’est-ce que l’économie informelle ?",
      "role": "document",
      "sourceUrl": "https://www.imf.org/-/media/files/publications/fandd/article/2020/december/fr/what-is-the-informal-economy-basics.pdf",
      "summary": {
        "path": "/-/media/files/publications/fandd/article/2020/december/fr/what-is-the-informal-economy-basics.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/files/publications/fandd/article/2020/december/fr/what-is-the-informal-economy-basics.pdf",
        "mime": "application/pdf"
      }
    },
    {
      "title": "What is the Informal Economy? – IMF F&D",
      "role": "document",
      "sourceUrl": "https://www.imf.org/-/media/files/publications/fandd/article/2020/december/what-is-the-informal-economy-basics.pdf",
      "summary": {
        "path": "/-/media/files/publications/fandd/article/2020/december/what-is-the-informal-economy-basics.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/files/publications/fandd/article/2020/december/what-is-the-informal-economy-basics.pdf",
        "mime": "application/pdf"
      }
    }
  ],
  "alternates": {
    "markdown": "/en/publications/fandd/issues/2020/12/what-is-the-informal-economy-basics/index.md",
    "json": "/en/publications/fandd/issues/2020/12/what-is-the-informal-economy-basics/index.json",
    "bundleManifest": "/en/publications/fandd/issues/2020/12/what-is-the-informal-economy-basics/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-09-15T06:45:03.175Z"
}