Informal Sector Definition

The term was first coined by Hart in 1972; he defined it based on wage employment wherein he defined labourers who aren't wage employed in the organized sector as informal. Informal economy has various shades and hence the term is elusive in nature in spite of heavy amount of research. Throughout the two decades various definitions have evolved and been debated upon but so far no concrete definition has come up. In order to develop strategies and policies for this sector a proper working definition needs to be evolved. Hence we may begin my defining the various roles this sector plays.

Informalisation in a lay man’s term can be defined as the legal economic activity taking place outside the radar of government. Hence the jobs provided in this

Over the years, definition of informal sector has broadened; and the latest ILO definition includes: If we look at the formal definition, by ILO-UNDP, it is a sector to which entry by new enterprises is comparatively easy; enterprises in this sector rely on indigenous resources and are family owned; they operate on a small scale, in unregulated and competitive markets and use labour intensive and adaptive technology; their labourers have acquired skills outside the formal sector (torres, 2007).

The criteria for informal sector according to ILO report on Kenya (1972, p.6) were:

1.) Ease of entry

2.) Reliance on indigenous resources (Bangasser, 2000)

3.) Family ownership of enterprises (Bangasser, 2000)

4.) Small scale of operation (Bangasser, 2000)

5.) Labour-intensive and adapted technology (Bangasser, 2000)

6.) Skills acquired outside the formal school system (Bangasser,

These two terms are often used interchangeably; however they are stark different in meanings and implications. The informal enterprises are comprised of unorganised sector while the informal employment comprises of people who are informally employed in either the organised or the unorganised sector. Informal sector is hence defined based upon two approaches:

Enterprise approach: according to this approach the informal sector is defined based upon the characteristics of the production units. Hence the sector is defined as a “collection of enterprises”.

Labour approach: it defines a set of guidelines for labourers who are employed informally.

These two approaches together have simplified the policy making process and the approaches that are to be taken. Policies made for the unorganised enterprises will take the enterprise approach while the policies for the informal labourers will take the labour approach.

8.) For the purpose of defining the informal sector under the labour statisticians and national accounts, characteristics of the production units wherein that activity takes place i.e. enterprise approach is preferred rather than the characteristics of the person involved or the nature of the job i.e. labour