Informal Economy Current Realities Linkages Formal Sector Informality Economics Essay

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It has been recognised that over thirty years International Labour Organisation established the informal sector intensifying the conception from the sector of the economy. The expanded definition of informal economy refers to all economic activities by workers and economic units that are -in regulation or in practice or exercise or not roofed or inadequately sheltered by formal preparation or planning ( ILO, 2002). [1] This brings together enterprise and work relationships and it does not get rid of the informal sector but extends to incorporate all workers who are not adequately protected even when they are employed in formal units of sectors or areas of production of some industries or factories or in an enterprises in today`s world of work.

Han (2003) [2] argued that presently, informal economy refers to informal enterprises which is like any other form of non standard wage service or employment for example workforce or employees in sweatshops production, domestic workers, workers of industries and casual workers, contractual and part-time workers. This elaboration simply means that informal economy is characterised by the state of vulnerability and unprotected workers which this paper seeks to discuss in detail. For example, Becker,( 2004) gives a good description of the informal economy as “ the unregulated non formal fraction of the market economy that produces commodities and services for trade or any other form of earning or remuneration”. The major feature of the informal economy is the state of increasing illegality in many work places and this is mainly because workers well fair is not a priority especially in un registered enterprises of the informal economy.

Apparently, the common features of informal economy are the large number of small scale enterprises and service activities which are individually and family owned and largely involve the use of labour intensive and little or limited simple technologies. The central element of informal sector is self-employment which is different from the formal sector.

Besides that, Informal economy encompasses a range of segmentations such self-employment based in the informal enterprises and these are basically workers in the unregistered or un authorised or unincorporated enterprises and these may also include the employers and workers with own account who works as the heads or bosses of family enterprises and particular persons operators and also the unpaid family workers such as those who performs the domestic work or occupation, these workers they often with limited guarantee of getting payments, in some instances such home workers are paid meals and clothing and as form of surviving, but regards of such informal sector segmentations, these people are very much exploited.

The subsequent segmentation of informal enterprise or informal jobs also follow under, wage employment in informal occupations, in such segmentation this is basically for workers who often work with no workers benefits and also such workers do not have social protection and this include both workers of formal and informal firms and households level and largely without fixed employers ,this is very rampant with the employees of the informal enterprises and micro or small scale ones. The rest of the informal workers who are the wage workers these are casual or day workers, they also be domestic workers, these domestic workers do not actually have the clear set of responsibilities. This is also followed by the unregistered and the workers who are undeclared and they are working in the informal sector, the part time and those who work on temporary basis.

Definition and Interpretation of Formal Sector

Formal sector refers to a regulated economy whereby decent work is guaranteed and workers enjoy full or relatively the same standards of working conditions and benefits. For example, in the formal sector, the labour market is regulated and employees are protected by the labour laws in place only that the form of protection and benefits vary employers and state or regionally. In this case, formal sector in developed world as regards to benefits and protections are different from those of transitional states and developing countries in general. A good example of protection among workers in the formal sector would be the pension system in Holland. It is believed to be more vibrant compared to pension systems in African country.

1.2 Definition and description of Informality

The notion of informality emanated from the informal economy in 1972, during the same period there was a concern to highlight the problem of unemployment by the employed people who does not earn decent salaries or enough money to make them earn a living. In this case the underpaid poor and economic informality was defined as a means of doing things. For example, majority of the people working in the informality situation do work in undersized or small units, whereby they produce or sell some commodities and services.

This form of informality tend to employ family members and ultimately some of the wage workers as the business or their retail business tends the expand and grow a little bit higher. Many individuals working in informality tend to exit or concentrate in the urban areas and often use relatively little capital and the division of labour is often little or small in common practice. Normally, the key conditions are; easy or rather free entry and exit in the unregulated and competitive market (Tokman,2007). [3] Such people have little potential for sustained growth and as regards to that, they tend to have little incomes. It is from this a glaring exposure that formality was thought of as a solution to protect the poor people or the whole population in general.

Conceptually, there has been numerous academic debates pertaining the natural history and description of informality. It has been encompassing several reflections on both regional and local experiences in the midst of production and work affiliations or relationships further than the realm of documented or recognised, regulated and registered employment or business or any other undertaking within the world of work. For example, many states or governments have tried to give interpretations which have actually been the driving force to many kinds of policy interventions to promote new changes in the local or domestic labour market for any country. Although there has not been a homogeneous state of policy interventions between countries but at least informalities do exist in all societies, Besides that, ever since 1970`s the conceptualization of informality has been at the centre in the academic and policy making atmosphere to explore the linkages between domestic relations of work and as well as the production, employment, the expansion and jargon of marginality in general.

According to Tokman (2007), he emphasised that it often goes further than the initiation of debates and diverse diagnostic perspectives that have prevailed all the way through 35 years, arguing that, the concept of informality has contributed to the thoughtful of employment problems and development problems in the course of identifying the best strategies and make clear priorities and options. Informality as a concept emanated as an matter that is linked to urban problems and planning of urban setting in many countries. Additionally, the introduction of housing mortgages in many developed countries and The Netherlands being inclusive, it happened after realising that there was an informality in the planning system of people`s settlements or residents whereby, they introduced the city zone, glasses for fruits and flowers and specific places for residential houses. Tokman also argues that in the period of 1970`s and 1980`s, informality was crucial to recognize the employment issues in developing countries and to discover why it adopted fewer observable forms and predominantly.

The idea of informality existed and it has become current in economic and social thoughts and reflections in the early 1970`s, the notion of informal sector presents an important room for workers who are often waiting to be absorbed by the formal sector. It is also in this regard that the existing or contemporary trends suggests that a majority of the Indian work force labour or work on short-term contracts in informal sector (Breman ,1996). [4] 

However, the expanded definition seeks to include the whole of informality, as it is embedded in developed, transitional and developing economies or countries and the real world of dynamics in labour markets at present mainly the employment engagements or activities of poor people and the main goal is to broaden the focus and concern to incorporate not only enterprises which are not legally regulated but also employment interaction and relationships that may not be legally regulated rather protected (Chen, 2004). [5] Nevertheless, the expanded definition tries to seek ways and forms of harmonizing the unpleasant working atmosphere by relating the formal sector and informal sector in a bid to realise the decent working living and working conditions in all aspects of work which is paramount in today`s world of work.

Finally, Informality is also defined at every level of work or occupation and this is often based on the employment relations. It is from the angle or perspective of informal workers who do not benefit from any form of social security or labour security for example regulation pertaining hiring and firing, minimum wage workers and protection from dismissal social insurance and health insurance though employments have got several categories and varies from sector to sector.

1.3 .The relationship based on the linkages between the formal sector and informality

This paper recognizes that the informal economy sheds a better light on the present realities of the linkages or relationship of the formal sector worker and informality. Although, the above interpretation tries to define some of the concepts but a detailed analysis pertaining the linkages is as follows.

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