The term, “Informal Economy” was first used by Keith Hart (Informal Income Opportunities and Urban Employment in Ghana” in Journal of Modern African Studies) during the 1970s to describe the temporary economic strategies adopted by migrant workers in Ghana. Over time, various definitions have come into place.
- ILO’s Kenya Report (Employment incomes and equality: A strategy for increasing productive employment in Kenya, 1972) defines informal activities as “a way of doing things”, characterized by (a) ease of entry (b) reliance of indigenous resources (c) family ownership of enterprises (d) small scale of operation (e) labour intensive and adapted technology (f) skill acquired outside of the formal school system (g) unregulated and competitive markets.
- M. Castells and A. Portes (World Underneath: the Origins, Dynamics and Effects of the Informal Economy, 1989) state that informal sector activities are “unregulated by the institutions of society, in a legal and social environment in which similar activities are regulated.”
Although several authors have attempted to give a comprehensive definition of this sector, it has been concluded that it is not possible to develop an exact exposition of the term. Frequently, it has been referred to those activities that are, of course, largely contributing to the country’s employment and production capacity, yet are not regulated by the government in terms of payment of taxes, labour provisions, legal transactions and business permits.
Informal sector is the pre-existence of the formal sector. However, its contribution to the world economy has been very recently recognised and debated upon. The word, “informal economy” was first brought into reference in 1970s. But its advocacy process began way back in the 1950s and 1960s when it was insisted that post-world war economy-building process should be not be confined to Europe alone, but should be extended to developing countries as well. The 1972 ILO Mission to Kenya first came out with an in depth definition regarding the concept of informal economy.
The informal sector is a common phenomenon in developing countries. It usually has the biggest share in the economy, but is least recognised. The ILO Kenya Report puts in, “Informal sector activities are largely ignored, rarely supported, often regulated and sometimes actively discouraged by the Government.” As a result, workers in this sector face employment problems such as minimum wage, long hours of work under difficult conditions and absence of any kind of social protection mechanisms. Micro-entrepreneurs under this sector fail to have access to formal sources of finances.
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