The Informal Sector

INFORMAL SECTOR

In the mega cities in the Global south, the informal sector constitutes a significant part of the urban economy and employment market. In Trinidad and Tobago, unemployment rates are approximately 6% which therefore leads to growth of the informal sector (Bridgelal 2011). Within the city of San Fernando, this can be seen through street vending at the sides of the roads in the CBD – High Street, San Fernando. The informal sector however, is a phenomenon of great diversity. (Daniel 2004) The informal economy is large and pervasive and often ignored.

Street Vendors in the CBD- High Street, San Fernando

Four sub-sectors within the informal sector have been identified by Potter and Lloyd-Evans (2004) in Hall and Barrett (2012). These include:

• The subsistence sector
• Small scale producers
• Petty Capitalist Sector
• Criminal Sub-sector

Characteristics of the informal sector includes according to Drakakis-Smith (2000;131):

• Ease of entry
• Irregular hours/pay
• Local inputs
• Family property
• Small scale
• Labour intensive
• Adapted technology
• Non-School skills
• Unregulated market

However the question that arises of having the informal sector, is whether its presence is beneficial or burdensome for cities.

“Trying to bring the informal sector into the fold has several advantages. Not only is it unregulated and untaxed, it typically provides only low-wage and low-productivity jobs. Rigid labor market and business regulations often reinforce the barriers between the formal and informal sectors.” (iMF Direct 2011)

Lately, many agencies, according to Hall and Barrett (2012) consider informal economic activities in a more positive light, viewing them as a means by which the poor urban sector can help themselves by providing good and services at an affordable price and as the provider of employment opportunities that occupy many within cities where limited formal opportunities exist.

The informal sector is also viewed as an alternative to the capitalist system. However, the reliance on the informal sector activity can also be viewed as an excuse for authorities to ignore problems in the city.

What are the disadvantages of the informal sector?

The answer to this, relates to losses on the paths of people and also the government. The people/workers, because they end up working in an unregulated, unprotected, insecure environment, and the government, because they loose out on tax revenue. According to the iMF Direct (2011) People not only loose out on social benefits, but they end up seeing their talents and traits diminish, as they have no avenue to further develop themselves, and thereby give no prospect of a brighter career path or career advancement.

“Lack of access to well-paying and productive jobs—particularly for the growing number of young labor-force entrants—translates into lost opportunities and is a source of tension, for individuals and for society as a whole.” (iMF Direct 2011)

Citing exactly from the iMF Direct (2011) is the following on What can policy makers do in terms of the informal sector issue, written by Masood Ahmed, November 16, 2011.

“ What can policymakers do?

• To improve access to economic opportunities and achieve more inclusive growth, policymakers will need to reduce the costs and burdens of entering the formal economy.
• Changing labor regulations can make it less expensive for employers to hire workers formally.
• More straightforward rules for establishing and operating a business will encourage entrepreneurs to start businesses on a formal basis. Enforcing the rules fairly and consistently means that firms share not only the responsibilities but also the benefits of operating formally.
• Simpler tax regulations and stronger administration will complement these reforms. At the same time, workers in the informal sector will need help in acquiring the skills demanded by the formal sector. “

The following is a link/Video related to ways of improving informal sector economies:

https://www.youtube.com/watch?v=OfK8n90Cbv4

References

Ahmed, Masood. 2011."Bringing the Informal Sector into the Fold." iMFdirect - The IMF Blog(blog). Accessed April 9, 2014. http://blog-imfdirect.imf.org/2011/11/16/bringing-the-informal-sector-into-the-fold/.

Bridgelal, Carla. 2011. "Rise in unemployment - Total Economic Waste." The Trinidad  Express. Accessed April 10, 2014. http://www.trinidadexpress.com/business-magazine/rise_in_unemployment_A_TOTAL_ECONOMIC_WASTE-131569578.html.

Daniels, P.W. (2004) 'Urban challenges: the formal and informal economies in mega-cities,' Cities, 21 (6):501-511

Hall, Tim, and Heather Barrett. 2012. “The informal economy in Cities – alternative economic spaces.” Urban geography. London: Routledge.