The analysis is done for the period 1984 - 2000, which includes phases of boom and economic crisis as well as the implementation of neo-liberal reforms to national development. The paper summarizes four competing approaches to the conceptualization of the informal sector, and describes their measurement strategies. It argues that elements of state regulation are fundamental whereas firm size should not be considered as a defining element.

Subsequently, it analyzes how the internal composition of the informal sector evolved, considering elements of state regulation, firm size, and dynamism of the economic activities. It examines the function of the informal sub-sectors in the urban labour market, using indicators such as relative earnings and size, and a crude indicator of labour mobility.

At least three sub-sectors conforming the informal sector are identified: salaried workers of large and small firms, entrepreneurs and subsistence workers. It is argued that each sub-sector of the informal sector responds in different ways to prevailing economic conditions. The subsistence sub-sector supports the dualistic view, whereas the other two are integrated to the formal sector. No dominant sub-sector permits broad-range generalizations about "the" informal sector.

The term informal economy covers a set of heterogeneous activities, from unpaid labour to any number of unregulated salaried jobs. This broad range of activities has made it difficult for analysts of the informal sector to agree on its definition.

However, there is consensus on two broads points: first, the informal economy is part of the economy at large, which determines its main characteristics and on which it depends; and second, the informal economy is largely defined by activities outside state regulation.

In spite of these two broad agreements, the reasons for the existence of unregulated activities and their function in employment differ and then the implications in terms of labour policies also differ. 

The internal composition of the urban informal sector shows that it is wrong to talk about “the” informal sector. It is a heterogeneous sector, composed at least of three sub-sectors – direct subsistence, informal salaried or subordinated, and small entrepreneurs - whose goals, characteristics, and function differ.

Consequently, the implications of labour policies also differ for them.
The research argues that the structural “neo-liberal” reforms of the 1990’s that significantly modified the labour market environment, not only have had the unintended consequence of increasing the response of unregulated activities to economic cycles but they have also have the unintended consequence of increasing the level of precariousness of the labour force.

University of the Andes (Colombia) - Department of Economics
Carmen Elisa Flórez, tel. +1 571-3324495

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01/04/2002

Carmen Elisa Flórez

research

Urban Policy > Economy knowledge & employment > Urban economy

Employment