The Informal Economy

The concept of informality is the natural order of things. Everything starts informally. After regulations and policies are added then, a distinction between the formal and an informal economy is formed. There are several reasons to join the informal economy: They may lack the formal education to be a skilled worker, some may want to avoid paying taxes, and others are too poor to access public and financial services. This sector should be a necessary part of every economy: an alternative for those that live in countries with limited access to education.

Before I started learning about the informal economy, I was ignorant to the legalities of the informal sector. I, who is someone striving to be apart of the formal sector, saw myself in comparison to the informal as being from two different worlds. The stereotype of the "black market" painted an inaccurate picture, alluding hub of drug dealing and organ selling: world of lawlessness and crime.

However as I began learning about the informal sector I started to see that it was majorly a group of people from the lower middle class and poor communities trying to find a means of surviving financially. The informal sector provides an alternate form of income: Many are entrepreneurs running their own kiosks, farming and even manufacturing.

More than 61 per cent of the world's employed population are make their living in the informal economy, the ILO said in a report. These informal jobs are labor intense working long hours, earning low wages. Due to the nature of these jobs, they were only accepted amongst people with no other means to make money.

In the field of education, people in the informal sector typically revieve low levels of formal schooling, high drop-out rates from school and lack of access to tertiary education. This is particularly so in the case of women, who make up almost two-thirds of all those employed in this sector.

In many Middle eastern countries, gender discrimination is profoundly privilent. In some countries the opportunity to receive tertiary education is not difficult for women, therefore the informal sector is the only available source of employment offered to them as ther skill level. In countries such as: South Sudan and Central Rebulic of Africa, there is a large ration difference between teachers and students attending public school, therefore to cut down on the amount of children attending school, women are advised not to attend. (Girls' education: facts and how to help - Jasmine Owen)

In an attempt to decrease the amount of people working in the formal sector, the tax system design should avoid i increasing incentives for individuals and firms to remain in the informal sector. It is widely known that simpler value-added and corporate tax systems (with no or minimal exemptions and loopholes) with lower rates, as well as low payroll taxes, help reduce informality. Supportive social protection systems, including progressive income taxes and protection for the poorest, help address distributional aspects.

Policies to enhance financial inclusion by promoting expanded access to formal (or bank-based) financial services can help lower informality. Lack of access to finance is a key constraint for informal firms and entrepreneurs, stifling productivity and the growth of their businesses. Countries where access to finance is greater tend to grow faster and have lower income inequality.

Informality critically affects how fast economies can grow, develop, and provide decent economic opportunities for their populations. Sustainable development requires a reduction in informality over time, but this process will inevitably be gradual because the informal sector is currently the only viable income source for billions of people.

Informality is best tackled by steady reforms, such as investment in education and policies that address its underlying causes. Attacks on the sector motivated by the view that it is generally operating illegally and evading taxes are not the answer.