The Hidden Gem: Understanding the Importance of Informal Economy
We often hear the term “informal economy” but what does it actually mean and why is it important? Informal economy refers to economic activities that are not regulated by the government and are not captured by official statistics. This often includes street vendors, freelancers, and small businesses that operate in cash. While the informal economy might often be viewed as a negative, it actually plays an important role in economic development.
Firstly, the informal economy provides a source of income for millions of people, especially in developing countries where formal jobs may be scarce. According to the International Labour Organization (ILO), over 60% of the world’s workers are employed in the informal economy. These workers often have limited education and skills, and would struggle to find formal employment. The informal economy gives them a way to earn a living and contribute to their country’s economy.
Secondly, the informal economy also provides goods and services that are not available in the formal economy. For example, street vendors may sell food in areas where formal restaurants are not present. This helps to increase access to basic needs for people who may not have other options. Additionally, informal businesses may provide custom services that are not available in formal businesses. For example, a tailor may provide custom clothing services that are not available in larger chain stores.
Despite the benefits, the informal economy also presents challenges. Workers in the informal economy often do not have access to social protections such as health insurance or pensions. They may also face exploitation or unsafe working conditions. Moreover, the income earned in the informal economy may not be stable, leading to economic insecurity.
Governments need to find ways to capture and integrate the informal economy into their formal systems. This can involve creating opportunities for informal businesses to register for licenses and access financial services. It can also involve providing social protections for workers in the informal sector. By bringing informal businesses into the formal economy, governments can help to increase their tax base and provide greater benefits to their citizens.
In conclusion, the informal economy is an important component of economic development. It provides income and services that may otherwise be unavailable to many people around the world. However, it also presents challenges that need to be addressed. By finding ways to integrate informal businesses into the formal economy, governments can help to increase economic security for all citizens.
