Chapter

Rethinking the informal economy: linkages with the formal economy and the formal regulatory environment

Martha Alter Chen

in Linking the Formal and Informal Economy

Published in print September 2006 | ISBN: 9780199204762
Published online September 2006 | e-ISBN: 9780191603860 | DOI: http://dx.doi.org/10.1093/0199204764.003.0005

Series: WIDER Studies in Development Economics

 Rethinking the informal economy: linkages with the formal economy and the formal regulatory environment

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This paper explores the relationship of the informal economy to the formal economy and to the formal regulatory environment. It begins with a comparison of the earlier concept of the ‘informal sector’ with the new expanded concept of the ‘informal economy’, which includes microentrepreneurs, own account operators, informal wage workers, and industrial outworkers. It argues that (a) most informal enterprises and workers are intrinsically linked to formal firms; (b) different segments of the informal economy are over-regulated, de-regulated, or under-regulated; and (c) there are benefits and costs to both formality and informality. The paper concludes that the appropriate role for government is (i) to ensure that the formal regulatory environment is not biased in favour of formal firms and workers over informal enterprises and workers (or vice versa) and (ii) to regulate the commercial and employment relationships between formal firms, informal enterprises, and informal wage workers.

Keywords: informal sector; legality; gender; regulation; policy

Chapter.  6412 words.  Illustrated.

Subjects: Economic Development and Growth

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