Informal Labour and Credit Markets: A Survey.

who define informal all unregistered economic activities, which contributes to the officially
calculated GNP. This strand of literature focuses on all the portion of income from legal
activities not considered by the standard measurement procedures used for the compilation
of national income accounts. A broader view includes illegal activities and the informal
household economy, but a stricter definition looks mainly at all legal activities that would
generally be taxable. Those activities are unreported mainly for tax evasion and to avoid
social security contributions and other labour market regulations.

The National Commission for Enterprises in the Unorganized Sector (NCEUS from
now on) reports on Definitional and Statistical Issues relating to the Informal Economy
in India is an example of the second approach. According to this report, the informal (or
unorganized) economy is given by the informal (or unorganized) sector and its workers
plus the informal workers in the formal sector, where the unorganized (informal) sector is
defined as all incorporated private enterprizes owned by individuals/households with less
than 10 workers. Also the report defines unorganized (informal) workers, as workers in
the unorganized sector, households, excluding regular workers with social security benefits,
plus workers in the formal sector without any social security benefit (NCEUS (2008)) ⁶.

From a methodological point of view, the size of the informal economy has been esti-
mated directly and indirectly. The direct method relies on surveys or samples, while the
latter uses macroeconomic indicators with information on informal activities. The main
drawbacks of direct methods as survey or tax-auditing are that the information collected
is often incomplete, samples can be biased, and also they refer to one point in time, lacking
information on the development of the phenomenon over a period of time.

There are a variety of indirect methods to quantify the extent of informality. Schneider
(2005) describes five of the most used methods. Schneider (2005), for example, opts for
the currency demand and the DYMIMIC (dynamic-multiple indicators multiple-causes)
methods. The former of these is based on the assumption that cash payments is used for
hidden transactions so an increase in the demand of currency should reflect, separating all
other possible causes, an increase in the number of hidden transactions. The latter of these,
which is an evolution from the MIMIC or unobserved/latent variables approach is based on
the critique that the shadow economy has an impact not only on money market, but also
⁶See ILO (2002) for a comparison of informal employment in various economies.

<<   5   6   7   8   9   10   11   >>

More intriguing information