What is the informal sector?

The informal sector concerns economic activities that do not correspond to the characteristics of traditional sectors. These economic activities are often developed from necessity and are not regulated or taxed. In some cases, they may include illegal activities, but this is not always the case.

The informal sector is a concept that can be very difficult to define. Although individuals try to create definitions, they are usually subject to control and debate. This is because the term informal sector may apply to a wide range of activities in different environments that are powered by different motifs. One of the safest ways to describe such a part of the economy is to say that it is one that does not fit into the conditions and definitions of any of the formal sectors.

In many cases, the informal sector is powered by a lack of opportunities. This is often seen in third world countries where unemployment is high and there is a limited task. As a means to survive individuals develop methods, how to earn revenue. This often involves creating informal industries. Although they are not subject to regulation, as they become more common, standards may develop.

For example, in some countries, it is very common theft of easily removable automatic parts, such as windscreen wipers, side view mirrors and Hubcaps. Identifying opportunities are on the street and guards of the vehicle to prevent it. Although this type of arrangement generally works on the basis of donation, standards determine suitable payments for these services. Standards may also dictate that higher payments should be provided at night.

Although informal sectors may differ significantly, there is another aspect that tends to have in common: lack of taxation. Although some of these sectors may generate a substastic amount of income, nation or local jurisdictions do not receive direct benefits. In some cases, the existence of theseon the industry lead to economic damage. This often happens when there is a major informal sector that includes illegal activities such as the foreign exchange of black market.

It is often difficult to assess the extent of the informal sector because there are no means to measure it. Documentation is likely to be small, if any, there are probably details of methods and participants. Generated revenue tends to be hidden or immediately reinvested to other segments of the economy.