Introduction
According to economics, the informal sectors, or the grey economy is perceived to be part of the modern economy that is neither monitored nor taxed by various forms of the government. As compared to the formal economy, it is evident that all the activities of the informal economy are not always incorporated in the GDP (gross domestic product) or GNP (gross domestic product) of a country. The reason as to why the informal sector is termed as being a grey market is as a result of taking into consideration the volume of labor needed to execute the existing tasks (Jean et al 15). In addition to that, there are various concepts that can be used for the purpose of characterizing the informal sector. This includes things like black economy (underground or shadow economy), system D, and agorism.
On the other hand, despite the fact that informal sector have been realized to have the potential of making considerable portion of the economies in the majority of the developing countries, the truth is that the same is somehow stigmatized as a result of unmanageable and troublesome. Despite that, the truth is that informal sector has the ability of providing significant economic opportunities for the majority of the poor (Erika & Sacha 55). Thus, it implies that the need for integrating informal economy into the existing formal sectors is also something to have proven to be one of the important policy challenges. Research indicates that the informal economy is something that ultimately consists of more than fifty percent of the world labor force as well as more than night percent of other small business, especially (SMEs) worldwide. This is to means that informality is one of the most important characteristics of the modern labor market that comprises of economic units (Paul 85).
Discussion
According to the modern economic research, informal economy ultimately takes into consideration several economic activities that are tackled by employees and other economic units that are not insufficiently covered by the approved formal arrangements, whether in practice or in law. Although this definition do not have to take into account illegal activities, the economic units in this context refers to all units that recruit hired labor, solidarity, social and cooperative economic units, and persons working on their own accounts (Center for the Study of Democracy 121). Nonetheless, what this indicates is the fact that the majority of the activities that are contained in the informal economy always takes outside the government recordkeeping or regulation. The following as some of the areas that are taken into consideration when explaining the impacts of the modern informal sector or economy taking into consideration its advantages and disadvantages
- a) Political and social issues and their implications
According to the modern transition and development theories, in the informal sector, employees normally have unstable income, or receive little incomes which are ultimately coupled with the lack of general assessment to basic services and protection. Ideally, the informal sector is a field that is extremely large than the majority of people could realize, with women participating more as compared to men (Guillermo 13). The majority of the poor people working in this sector, especially women, mainly considered it as being the only source of income for their families. Despite that, it should be realized that this sector can lack the ability of growing hence indefinitely tapping workers in menial jobs. Likewise, research indicates that the informal sector can have the ability of enabling a large percentage of people to escape extreme levels of poverty through earning satisfactory income to sustain their life (Paul 85).
On the other hand, it is evident that in a large percent of developed countries, it possible to find that those individuals who are formally employed might opt to perform a portion of their duties outside the formal sector. The reason for that it is perceived to have the ability of delivering to them more advantages as compared to the informal sector. From such a perspective, it means that it gives them the capacity of delivering to them pension and child benefits, social protection, and so on from their existing formal employment. From the government’s point of view, the informal sector can have the ability of creating a vicious cycle (Perry 43).
Due to the fact that government can lack the capacity of collecting revenues from the informal economy, the government may lack the capability of financing public services. The effect of this is that it can end up making this economy to be more attractive. Despite that, some countries also consider informality as being beneficial to the economy because of its ability to enhance access to labor as well as mitigating issues associated with unemployment. The need of recognizing that informal sector has the potential of producing considerable goods and services, contribute to exportation and importation of goods and services, and create essential jobs is ultimately critical for governments (Boels 205).
- b) Gender
As noted from above, in the informal economy, women are the ones who contribute greatly when it comes to the accomplishment of the various activities contained in this sector. Although a large percent of them end up in the most corrupt and erratic sectors of the economy, the truth are that the majority of the female who provides non-agricultural labor force are contained in informal sector, especially in developing nations. In the informal economy, one of the major occupations include things like home-based employees, (for instance, unsalaried employees in family ventures, independent personal account producers, and dependent subcontract employees), and street vendors (Polese 3). In the informal economy, there are various factors that are used to represent women. An example of this is the fact that recruitment in the informal economy is perceived to be the only source reliable employment to thousands of women. On the contrary, in developing countries, various factors, such as, illiteracy, religious seclusion, and cultural norms, and greater commitments to their family are what hinder women to enter into the informal sector (Center for the Study of Democracy 127).
In addition to that, the connection that exists between recruitment in the modern informal sector as well as the state of being poor is something that is stronger or more challenging for women as compared to men. Although a large percent of men end up being over-represented in the topmost segments of the informal economy, the reality is that women only have the tendency of overpopulating the bottom segment. As a result of that, it means that men have the likelihood of having a large scale operations as well as dealing in non-perishable goods while a small percent of women could be employers who recruits them (Perry 44).
On the contrary, it is possible that women have the likelihood of participating in small sale operations which ultimately deals with food items. This suggests that, in the informal sector, the majority of women are always under-represented in high income earning positions as well as being over-represented in low income earning positions. Because of that, this has the effect of increasing the gender gap in the informal economy in terms of wage as compared to the formal sector. States, household decisions, and labor markets also have been noted to have the potential of propagating this inequality (Boels 206).
- c) Agents of political power
In the informal economy, economic research indicates that the majority of the employees often lack the opportunity of airing their views concerning the government policy. Although the political powers of the informal employees are limited, the presence of the informal sector also has the possibility of creating significant challenges for various politically influential people. For instance, despite that the informal labor force is not part of the trade union; they do not have the potential of changing the status (Boels 54). Accordingly, the informal sector has the ability of negatively affecting investments and workers membership in their trade unions. Instead, workers who could have been formally recruited and joined for the purpose of fostering their protection might opt to branch out voluntarily. Because of that, trade unions are left with no option but to oppose the informal economy, through highlighting the disadvantages and costs of the informal system (Supriya & Vando 8).
Similarly, it is evident that, in the formal sector, at times producers my feel endangered by the informal sector. The production costs and low labor, the bureaucratic autonomy of the informal sector, and the suppleness of production can all be perceived as being one of the significant competitions for the formal producers. This, in return, is what leaves with no choice but to object and challenge that sector. On the same note, the characteristics of the informal sector are free of standardized taxes and anti-regulation, which in aid in diminishing the political and material autonomy of the government agents. Regardless of the implications of these concerns, the informal economy has the potential of shifting political energies and power (Perry 45).
- d) Poverty
Typically, the relationship that exists between poverty and informal economy is neither clear nor simple. Since its causal relationship does not exist, the truth is that what has been observed is an inverse relationship between slow economic growth and increased informal economy. Ideally, in the informal sector, average incomes is something that is perceived to be significantly lower hence making it to be a high prevalence of impecunious workers employed in such an economy. On the other hand, in the informal sector, employees are less likely to have the propensity of benefiting from recruitment benefits as well as from other programs fostering social protection (Polese 76)
- e) Child labor
According to the modern economic research, a large percent of children are employed in the informal sector in various regions of the world. I most cases, they are employed as scavengers, (gathering various recyclable items from dump sites and streets), vendors, construction workers, cleaners, domestic workers, and so on. Regardless of what they earn, they work in exploitative and hazardous conditions. Since children are extremely susceptible to exploitation, they end suffering from the lack the lack the ability of accessing academic opportunities, which in return contributes greatly to social isolation as well as the lack of other future opportunities (Elizabeth, 8).
In addition to that, during economic crisis, unemployment rate increases steadily making people to lose their jobs. As a result of that, adolescents are compelled to sell goods or services as a means of supplementing the incomes of their parents. At the centre, instead of adolescent compromising their societal activities with their peers, they end up prioritizing their engagement in the informal sector. Therefore, it is important for the manufacturing labor force of children to understand that although it is not an ideal option, it is just a requirement for survival (Jhabvala 11).
Implications of the informal sector
Nevertheless, the expression of the informal economy ultimately consists of a vast assortment of situations and incidents. In reality, it has been realized that the informal sector have the ability of manifesting itself in a number of forms within and across the modern economic world. Because of that, some of formalization measures and process that are directed as facilitating transitions to formality ought to be tailored to certain situations that are faced by various nations as well as the categories of workers or economic units (Studies in Labour Economics 1). Despite these considerations, the truth is that the tasks that are executed in the informal sector is something that is always characterized by undefined or small working environment, unhealthy, and unsafe working conditions. This is also coupled with irregular or low incomes, low productivity levels coupled with the utilization of low skills, lack of general access to information, low working hours, use of outdated technology, and so on (Center for the Study of Democracy 123).
In the informal sector, employees have been perceived to face various challenges in terms of not being registered, recognized, protected, or regulated under the social protection and labor legislation. Basically, the main root cause of this informality include things like the legal, policy, and regulatory framework, economic context, as well as other microeconomic determinants, for instance discrimination, low education levels, and poverty (Polese 75). All these are also brought about by some factors such as the lack of continued access to available economic resources, financials, property, as well as other business services. Therefore, the preference of informal economy continues to be the main challenge the impact the rights of thousands of employees, their working conditions, hence inducing a negative consequence on public revenues, fair competition, soundness of institutions, and governments’ scope of action (Jhabvala 12).
On the other hand, involvement in the informal sector is perceived to become normalized because of the absence of resources that are available in marginalized and low-income communities (Elizabeth, 8). What this implies is the fact that regardless of the efforts they put into place; it is hard for them to advance in the modern economic hierarchy. The reason for that is because whenever a parent is unemployed or their job is extremely low in terms of demand, the truth is that they have no option other than seeking other alternative means of providing for their families. Still, due to the incidences of the absence of jobs as well as the limitations of obtaining employment opportunities, it has been realized that adolescents have the ability of cooperating with their parents (Studies in Labour Economics 2). The reason for that is because they have been realized to have the morale for working for the wellbeing of their families. In the process of assisting in the provision of the basic need to the family, it has been realized that in most cases, children end up missing their childhood because of the need of participating in other youthful activities. Ideally, this is to imply that at the long-run, they are given the responsibility of taking up adult tasks which enables them to be perceived as the ultimate means of securing the welfare of their family (Erika & Sacha 56).
Recommendations
So as to be in the position of promoting decent work, it is important for the government from various economies to ensure that they have come up with an integrated and comprehensive methodology to cut across a wide range of policy areas. This will also have to take into consideration the need of incorporating a range of civil and institutional society actors. The reason for that is because such individuals have the ability of eliminating the existing negative impacts of informality, which in return preserves the job creation (Tripathy 18). With that in hand, it is easier for the country to increase its income generating potential of their informal economy. Ideally, the objective of any economy entail promoting the protection as well as the incorporation of employees and other economic units that exists in the informal economy into the modern or mainstream economy.
Accordingly, the informal sector has the ability of negatively affecting investments and the membership of employees in their trade unions. As a result of that, workers who could have been formally recruited and joined their trade unions for the purpose of fostering their protection might end up opting out voluntarily. On the same note, the characteristics of the informal sector is perceived to be free of standardized taxes, which in return aid in diminishing the political and material autonomy of the government and its associated agents. Furthermore, in the informal sector, employees are less likely to have the propensity of benefiting from recruitment benefits as well as from other programs that foster social protection (Manson 174).
On the other hand, it should be understood that informal sector do not give the government the capacity of measuring the actual value of the economy which in return has the potential of assisting it to formulate better policies. Likewise, since the government is also deprived the opportunity of collecting taxes the way it used to be, it means that it is not easy to offer protection to consumers from purchasing unsafe or fake goods from sellers (Supriya & Vando 8). Due to the fact that at time those workers who get injured while at work do not have alternative to necessary insurance, this is also coupled with the fact that they also lack the opportunity of accumulating pension benefits from the government or the institutions that are working at. As a result of that, it implies that it the responsibility of the informal sector to ensure that they have maintained their small size so as to have the propensity of attracting attention (Jean et al 15).
As much as informal sector is concerned, the economic exchange of the system of trade that is utilized outside the country is the one that can aid in controlling business transactions. Thus, research suggests that the percentage of the income that is produced by the informal sector is not always recorded as required for the purpose of fostering business activities (Tripathy 18). Likewise, such information is mostly unavailable when they are needed for enhancing better computation of GDP (gross domestic product) of a country.
Conclusion
Consequently, the reason as to why the informal sector is termed as being a grey market is as a result of taking into consideration the volume of labor needed to accomplish the existing tasks. Therefore, the need for integrating the current informal economy into the existing formal sectors is also one of the scenarios that have proven to be some of the challenges impacting proper economic policy formulation. Nonetheless, what this indicates is the fact that the majority of the activities that are contained in the informal economy always takes outside the government recordkeeping or regulation. Preferably, the informal sector is an area that is extremely large as compared to the formal sector, with women participating more as compared to men. This is to imply that the majority of the poor people working in this sector, especially women, mainly considered it as being the only source of income for their families.
Nonetheless, due to the fact that government at times can lack the capacity of collecting revenues from the informal economy, it may also lack the capability of financing public services which in return improves the state of the economy. The end result of this is that it can end up making this economy to be more attractive. In the informal economy, there are various factors that are used to represent women. Ideally, it should be understood that recruitment in the informal economy is perceived to be the only source reliable employment to thousands of women. As a result of that, it is possible that women have the likelihood of participating in small sale operations which ultimately deals with food items. This means that, in the informal sector, the majority of people, especially women, are always under-represented in high income earning positions as well as being over-represented in low income earning positions.
Last, but not least, regardless of what a person earns, all of them work in exploitative and hazardous conditions which diminish social cohesion. Since workers are extremely subject to exploitation, they end suffering from the lack the lack the ability of accessing required economic resources and other opportunities to improve their wellbeing. What this implies is the fact that regardless of the workers put into place; it becomes difficult for them to advance in the modern economic hierarchy. Thus, in the long-run, it is important for individuals to understand the impact the informal economy has to their economy so as to take collective measures.
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