By qualities such as the need for low cost, more reliance on workforce and little need for expertise, it would be obvious that informal sector known mainly as informal sector is sector with irregular income, unknown working hours, and without insurance coverage and supportive aids and having other titles like shadow economy, underground economy, false economy. This sector is seen in all countries both developed and developing is a representative part of economic activities is secretly done for escaping restrictions in laws and regulations or because of special type of activity. Some of these articles are illegal like smuggling of goods and some others like women’s work at home because of weakness in data recording system are considered as informal economy. Therefore, it should be noted that informal economy is not always illegal.

Historical evidences show that employment in informal sector extends during economic adjustment periods and or transitional periods. When small companies are closed, dismissed workers cannot find a suitable alternative job in the official market, so they are entered into economy and informal employment. This issue is grater particularly in countries where there is no unemployment insurance and compensation to the unemployed people. In the period of economic transition, which it is possible it accompanied by rising inflation and reduced public services, families develop informal sector along with formal activities. During 1990s, globalization of economy was accompanied by informal extension of economy. Despite globalization can create new jobs and open new markets, but many of these are not counted as suitable or good ones and many new markets are small scale and they are not economical. Since many companies are willing to become small specialized and outsourcing their activities, informal markets expand. After economic recession in 2008, informal employment developed considerably so that more than half of non-agricultural jobs in the developed countries and more than 82% of non-agricultural employment were in areas like South Asia and Africa near the edge of desert, were in the informal sectors.

Today, informal economy is an attractive field of study for researchers in different fields such as economy, anthropology, political sciences and urban planning.

There are two different views in the literature of this field in the case of the informal economy. Some researchers consider it useful. Among the advantages of this sector is that it can help to sustain competitiveness and flexibility in the market and economic growth. Also, this sector can help families’ economy and it can remove their basic needs because of lack of need for high skills and its low cost. But on the other hand some researchers emphasize on harmfulness of informal economy and they believe that informal sector causes distortion of some economic indicators including unemployment rate, inflation rate and economic growth rate. Therefore, these false statistics mislead the economic officials, policy-makers and planners. This unrealistic outlook leads to increase corruption. Also, tax evasion in informal sector causes budget deficit and government’s financial loss and the government is forced to increase the tax rate. It forms an unfair competition between formal and group sectors. Other disadvantage of this section is the dire working conditions including social deprivation and job insecurity. Researches show that the disadvantages and problems of the informal sector is much higher than formal one and therefore, governments always try to minimize this sector as a problematic reality, but the logical solution is not eliminating this sector but it is trying to improve it. The informal sector has devoted about 20% of GDP to itself in our country on the basis of statistics and informal employment is nearly 30% of total employment of country and due to current developments that puts the country in the direction of global business, there is a possibility of extension of this sector.

Globalization of economy and especially business is for promoting global prosperity. Currently international business includes more than 60% of the world GDP and it is very important in the global development, but in the recent years the share of employment in the informal sector has become more along with growth and extension of international business. In developing countries, which they have extensive informal sector, shocks of entry into the global economy leads to increase the informal sector and informal employment.

On the other hand, informal economy can be placed as a big obstacle in the way of economic reform. In other words, as the structure of informal economy changes because of shocks like entrance to the world economy arena, this sector also affects quality and quantity into global arena and it can be incomplete transition factor. Both of them should be considered by economic policy-makers.

Source Ettelaat newspaper

Date : September 21, 2015

News Code : 26259