Informal Economy

The informal economy includes many legal activities that are simply not registered or reported, such as small street vendors, domestic workers paid in cash and unregistered family businesses. It is sometimes distinguished from illegal activities, although the related term shadow economy may include both.

The informal economy is especially large in many developing countries, where it can account for a majority of employment. For example, in many countries, much of the workforce is employed informally in agriculture, small trading and services, without written contracts or social protection.

Informality can provide jobs and income where formal opportunities are scarce, but it has disadvantages. Informal workers usually lack legal protections, pensions, health insurance and access to credit. Governments lose tax revenue, and official statistics may understate economic activity.

Governments try to encourage formalisation by simplifying registration and taxes, extending social protection, promoting digital payments and improving access to finance. Mobile money and digital identity systems have helped bring some informal activity into the formal financial system.