Mini-Case The Informal Economy: What It Is and Why It Is Important? The informal economy refers to commercial activities account for 183 percent, 163 percent, and 153 percent, that occur at least partly outside a governing body\'s respectively, of these nations\' total economic activity). observation, taxation, and regulation. In slightly differ- In the United States, recent estimates are that the infor ent words, sociologists Manuel Castells and Alejandro mal economy is now generating as much as s2 trillion in Portes suggest that the \"informal economy is character- economic activity on an annual basis This is double the ized by one central feature: it is unregulated by the insti- size of the US. informal economy in zoog. In terms of the tutions of society in a legal and social environment in number of people working in an informal economy, it is which similar activities are regulated.\" Firms located in suggested that \"Indias informal economy...(includes) the informal economy are typically thought of as busi- hundreds of millions of shopkeepers, farmers, construc- nesses that are unregistered but that are producing and tion workers, taxi drivers, street vendors, rag pickers, tai- selling legal products (that is, they sell many of the same lors, repairmen, middlemen, black marketers, and more. There are various causes of the informal economy\'s cheaper because they do not pay government fees and growth, including an inability of a nation\'s economic taxes). In contrast to the informal economy, the formal environment to create a significant number of jobs rel economy is comprised of commercial activities that a ative to available workers. This has been a particularly governing body taxes and monitors for society\'s bene-acute problem during the recent global recession. In the fit and whose outputs are included in a country\'s gross words of a person living in Spain: \"Without the under ground (informal) economy, we would be in a situation For some, working in the informal economy is a of probably violent social unrest.\" Governments inabil- choice, such as is the case when individuals decide ity to facilitate growth efforts in their nation\'s economic to supplement the income they are earning through environment is another issue. In this regard, another employment in the formal economy with a second job in Spanish citizen suggests that what the government the informal economy. However, for most people work-should focus on is reforming the formal economy to products you might buy in legal businesses but perhaps domestic product the informal make it more efficient and competitive choice-a reality that contributes to the informal econo- In a general sense, the informal economy yields my\'s size and significance. Although generalizing about threats and opportunities for formal economy firms. the quality of informal employment is difficult, evidence One threat is that informal businesses may have a cost suggests that it typically means poor employment condi- advantage when competing against formal economy firms because they do not pay taxes or incur the costs of Estimates of the informal economy\'s size across coun- regulations. But the informal economy surfaces oppor- tries and regions vary. In developing countries, the infor- tunities as well. For example, formal-economy firms carn mal economy accounts for as much as three-quarters of try to understand the needs of customers that infor- all nonagricultural employment, and perhaps as much mal-economy firms are satisfying and then find ways to as go percent in some countries in South Asia and sub- better meet their needs. Another valuable opportunity Saharan Africa. But the informal economy is also prom is to attract some of the informal economy\'s talented inent in developed countries such as Finland, Germany, human capital to accept positions of employment in tions and greater poverty for workers. and France (where the informal economy is estimated to formal economy firms
Informal economy is a parallel economy which is prevailing in almost all nations which has less control by the government or systems. They are not coming under the purview of taxation, regulation or policies which a country by its system has. It is purely unregulated by the government laws and policies. It is important because in developing and under developed nations th government has limitation or they are incapable to provide job opportunity for all citizens. Moreover informal economy economy basically drive on the theory of necessity rather than a choice. People need to live in the society through some jobs to meet their daily needs where formal economy has only limited opportunities to provide which wont be sufficient for the gross population. Informal economy could also satisfy their customers basic needs in much simpler way and they are very accessible and cheaper while compared to the formal one. Through the help of informal economy a nation can survive with their needs and reduce the pvoerty rate. Informal economy is much prevailed in developing and under developed nations and even in developed countries like Finland, Germany etc ( on an average of ~15% of overall economy.)
There are several threats an inforal economy can brings to the country. They are it create social unrest by lack of proper control mechanisms, it also make a parallel system where they create their own market and regulations which will be threat for a nation, illegal trades, tax evasions etc results in loss of revenue for the government. The extenstion of informal economy can also create lack of ethics and values in the society.
One of the personal example is people can buy electronic goods through formal and informal economy. In formal economy they have to pay duties and taxes along with the product value and those duties paid will be a revene for the government. Those revenue government can give back to the society or they can do it for public infrastructure of for their development activities/projects. At the same time people can also buy electonic products such as mobiles from this informal market where they have to pay less and the entire margin will go the seller or the particular distributor. Those money will be unaccountable or not in control by the government tax policies. This will create a economic unrest and hence black money will get accumulated which is not good for an economy from a broader perspective.
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