informal economy

informal economy As used by sociologists, the term refers to non-market work, in some cases with the addition of black economy work (which is market work strictly defined). Economists are more likely to use the term as an alternative label for the hidden, underground, or black economy which is imperfectly measured within the Gross National Product. These incompatible uses are the source of many misunderstandings and confusion in debates, particularly in non-disciplinary, interdisciplinary, or policy contexts.

There is a great variety of non-market work encompassed by the sociological term informal economy: unpaid domestic work, consumption work, non-market productive labour, community service work, producing goods and services that are bartered or offered as gifts within extended families or communities, non-legal commerce (in drugs for example), and work on which income tax may not be paid in full (a matter for speculation more often than factual knowledge). Some writers even include market work that is home-based, and thus seems to them to be linked more to household activities, than to the abstract concept of paid employment. The only thing these activities have in common is that they are not covered at all, or only partially, by official statistics on employment. Sociologists often assume that this reveals a failure or inadequacy of the statistics in question; in fact the exclusions are in most cases intentional, and derive from the fact that labour-market statistics are constructed within an economic theoretical framework, rather than a sociological framework.

Economists have always been aware that the total volume of productive work and consumption work are greater than that measured by official statistics of employment and Gross National Product. They reserve the term ‘black economy’ for that portion which should be included but may not be fully reported due to tax evasion. The term ‘marginal’ work or workers is reserved for those people (usually women, and numbering millions in Britain and some other countries) who have very small earnings from employment and are thus, perfectly legitimately, excluded from income tax and social insurance systems, and from related statistics. But in industrial societies, by far the largest volume of work excluded from definitions of employment and GNP consists of consumption work. In Economics and the Public Purpose (1973), the economist John Kenneth Galbraith pointed out that the conversion of women into a crypto-servant class was essential for the development and continued growth of the modern economy: the limits on consumption are severe unless the work can be delegated; the conversion of women from productive work in pre-industrial societies to the role of housewives who administer household consumption, opens up the possibility of indefinitely increasing consumption in market economies, and also contributes to the continuous expansion of service industries. The servant role of women is thus seen as critical for the continuing expansion of consumption in the modern economy.

In the 1980s social scientists became interested in the many types of work excluded from official statistics of employment, and attempted (with partial success) to classify and measure them. Few sociologists fully understand the concepts and operational definitions underlying employment statistics, and operational definitions differ between countries, leading to confusion over boundaries and overlapping definitions between types of informal non-market work and paid employment. For example, if one distinguishes between domestic production work, leisure activities, and domestic consumption work in the household work strategy, the close relationship between participation in the market economy and non-market work becomes clear.