Specific characteristics of the formal economy and informal economy

The formal economy:

(1)    has an organised system of employment with clear written rules of recruitment, agreement and job responsibilities.
(2)    has a standardised relationship between the employer and the employee is maintained through a formal contract.
(3)    the employee is expected to work for fixed hours and receives fixed salaries in addition to incentives and perks. He works under a decent work environment and is entitled to benefits such as leave, savings, loans etc.  He has an organised association or union where his official grievances are addressed. Besides, he is covered under social protection benefits such as life insurance, health insurance, pension, gratuity etc.

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People working in civil service, public sector units, government service, defence, multi-national/national/private companies, schools, colleges, research institutes, management organizations, banks etc.…all belong to the Formal Sector

The informal economy:

(1)    does not have any written rules or agreements.
(2)   it exists merely on verbal understanding.
(3)    it does not have fixed wages or fixed hours of work and mostly relies on daily earnings.
(4)    in most cases, the work atmosphere is congested and unhygienic.
(5)    the workers in this type of economy usually fail to come together and address their problems through an association or a group. They have poor awareness levels regarding social protection schemes, are unable to make savings and do not see the necessity of insuring themselves

People working as small farmers, street vendors, hawkers, small traders, micro-entrepreneurs, home-based workers, cobblers, rag-pickers, porters, labourers, artisans, etc…all belong to the Informal Sector

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