The spelling of "Informal Sector" follows the English language's phonetic rules. The word "informal" is pronounced as /ɪnˈfɔːməl/, with the stress on the second syllable. The second part of the word, "sector," is pronounced /ˈsɛktər/ with the stress on the first syllable. Together, the phrase is pronounced /ɪnˈfɔːməl ˈsɛktər/. The term describes economic activities that are not regulated by the government or other formal institutions, such as street vending or unregistered businesses.
The informal sector refers to a segment of economic activities and employment that operates outside the purview of government regulations and formal systems. It encompasses a broad range of unregulated, unregistered, and often unrecognized economic activities conducted by individuals or small enterprises. The informal sector is characterized by a lack of formal contracts, social security benefits, legal protection, and official recognition. It is typically found in developing countries and represents a significant portion of the economy.
The informal sector comprises activities such as street vending, small-scale agriculture, domestic work, and unregistered microenterprises. It is often a result of individuals seeking to earn a livelihood due to lack of job opportunities in the formal sector. The workforce in the informal sector tends to be comprised of self-employed individuals or family workers, and the level of organization and productivity varies widely.
Due to its unregulated nature, the informal sector faces numerous challenges, including limited access to credit, low income levels, lack of social protection, and vulnerability to economic shocks. However, it also plays a crucial role in providing employment opportunities, contributing to economic growth, and serving as a safety net for those otherwise excluded from the formal economy.
Efforts to formalize and integrate the informal sector into the formal economy are ongoing, recognizing the potential for economic development and poverty reduction. However, achieving such integration requires policies that address the specific needs and constraints of informal workers and enterprises while balancing the requirements of regulation and compliance.
The term "informal sector" originated from studies conducted by economist Keith Hart in the late 1970s. Hart used the term to describe economic activities that were not regulated or monitored by the government or formal institutions. He observed such activities in Ghana and found that many individuals and small businesses operated outside the sphere of official economic systems.
The concept gained popularity in development economics and was further developed by economists Martha Chen and Norman Long. They expanded the definition to encompass a wide range of economic activities, such as street vending, self-employment, and small-scale agriculture.
The term "informal" refers to activities that are not officially recognized, registered, or regulated by the government. It implies a lack of formal contracts, legal protection, social security, and benefits typically associated with formal employment.