Introduction
An important part of economic growth that exists in all countries and governments has been neglected. This sector provides most labor and productivity that small and large economies depend on daily basis. It is made up of men, women and children of all sexes working hard everyday at a specific trade or vocation. You or someone you know is probably part of this sector that does not get the credit it rightly deserves. By now, you are guessing what this sector is. The International Labor Organization calls it The Informal Sector. No matter where you live, there is one there!
This presentation is a review of the Informal Sector based on statistics provided by International Labor Organization. The aim is to evaluate the informal sector with regards to its contribution to local economy, regional and global economic growth. In making this analysis, the reader will appreciate the current state of the Informal sector and what could be done to improve their situation across all economies. To begin, it is important to understand what constitutes the informal sector.
The Informal sector - an overview.
The informal sector or economy exists everywhere but predominantly in developing countries. It covers all businesses, employment and income generating activities that are not regulated by the government. They do are not included in the formal labor market which is subject to direct supervision by the authorities or government. Hence they are considered an informal sector or economy. Here is how the ILO defines it:
The “informal economy” comprises all informal productive activities of persons or economic units, whether or not they are carried out for pay or profit. source
This informal sector is something we all see around us no matter where we live. The food vendor on the street sells food to customers to make money. It is part of the informal sector. Small-scale businesses, sole proprietorships, vocational skill acquisition centers, the hairstylist, barber, markets and various trades all belong to the informal sector. Now you can appreciate that this informal sector or economy is large and everywhere, contributing significantly to the growth of all economies.
How large large is the informal sector? It might be difficult to lay hands on an exact figure to represent the true size of the informal sector. This is because there is often no standardized data collection instruments in the informal sector. However, the ILO has done a great work to put out some stats that truly reflect the informal sector. Consider some of them:
2 billion employees worldwide work in the informal sector: This is a staggering figure, isn't it? That represents more than 60% of the global workforce. Or to understand it more clearly, more than half of the worlds employees work in the informal sector. The huge figure illustrates that economic growth the world over would stagger to walking pace if the informal sector is somehow removed from the economy - and a lot of people would be unemployed too.
4 out of every 5 businesses belongs to the informal sector: Another interesting stat. That means more than 80% of the worlds businesses operate in the informal sector.
Most developing economies make 39% of their GDP from the informal sector: That means the goods produced and other services rendered in such economies contribute close to half of their country GDP.
The above stats show how truly valuable the informal sector is to every economy. They are majorly the worlds workforce for socioeconomic growth and development. Unfortunately, this sector of the economy that contributes so much to national and global growth, is often left to its fate. They represent some of the worlds most vulnerable. The ILO report provided some data to appreciate this unfortunate situation.
Workers in the Informal sector are vulnerable
There are prevailing challenges that must not be overlooked in the informal sector. These challenges prevents people in the informal sector from enjoying a decent standard of living from their hard work. Businesses in the informal sector suffer too.
For individuals working in the informal sector, here are some of the challenges identified by the ILO stat:
- Informal sector workers are almost always poor:
A lot of workers in the informal sector suffer from poverty. It is not surprising because most times, the value of their productivity are not sufficiently reflected in the income. They are often considered as a primary source of cheap labor, hence they are likely to receive wages or salary much lower than the amount or value of work done. And because there is no formal regulation of the income structure, these lowly paid income earners often do not have any strong ground to negotiate better income or prices. And most often than not, they are left with no other choices than to accept what was offered.
- Lack of employment benefits:
This is almost 100% true especially in low-income economies. Most workers in the informal sector only earn their poor wages or salary and that is all the reward for them. There is often no added benefit such as those that exist in the formal sector. The do not enjoy pension when they retire. No vacation packages and other things. As a result, their standard of living revolves around poverty while at work and after that.
- Women more disadvantaged in Informal sector
Or in other words, women working in the informal sector come off worse than men. Apart from the general poor working conditions that everyone in the informal sector is exposed to, women have other things to face. They are more likely to suffer from sexual harassments from the opposite sex. This adds to the burden of challenges they have to contend with.
Some businesses in the informal sector will offer lower wages to women than men on the same job. This could easily be called gender discriminations. Its a bigger problem in the informal sector because there are no formal laws to protect them. Often, there is no one to run to because the informal sector is a place where the boss often has the final say.
Women might still experience other challenges in the informal sector like overwork and terrible working conditions. They are likely to face burnouts as they are meant to compete with men to handle tasking jobs in their place of work. These are added challenges that make the informal sector a terrible place for working women.
Final words
The ILO is trying to create awareness for the terrible state of the informal sector. They are partnering with governments, law-makers and all stakeholders in the society to improve the informal sector across the globe. Everyone has a role to play and when we do our best to improve the informal sector, the world gets better for all.
Research materials to explore more
Statistics on the informal economy
Resolution concerning statistics on the informal
economy
The reality of informality
Measuring Informality
Note: Thumbnail from pixabay
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this sector is often overlooked, contributes so much to our economy, providing jobs and supporting livelihoods, recently I started a side business and had to hire two people part time, should definitely appreciate the hard work of these individuals more 🌍💪 and mine 😅✌️
Exactly, its probably the wheels of the global economy. The informal sector is huge and exists everywhere. Just like you, I have been part of it fully since 2018 with my small IT firm - employing 3 persons. Government needs to intervene more to address challenges in this sector except that they wont.
Wish you all the best in your efforts. Being an employer of labor in the sector and keeping business alive is tough stuff.
Also, the informal sector should never be underrated. It is an important part of the economy and we should appreciate the workers too
It shouldnt. Workers in that sector often face poor treatment even from beneficiaries of their hardwork, but that is very pathetic. The informal sector deserves more respect, recognition and reward tha