Importance Of Informal Economy

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The informal economy thrives in a context of high unemployment, underemployment, poverty, gender inequality and precarious work. It plays a significant role in such circumstances, especially in income generation, because of the relative ease of entry and low requirements for education, skills, technology and capital. But most people enter the informal economy not by choice, but out of a need to survive and to have access to basic income-generating activities. Street vendors are crucial for the economic development and employment creation in most developing countries. However, their existence connote two important meanings: 1) They are solely dependent on the formal existence of big/huge business people who use them to act as channels…show more content…
4. Such offers can make them contribute in nations growth and help in rise of the economy. There is an overlap between working in the informal economy and being poor: a higher percentage of people working in the informal sector, as compared to the formal sector, are poor. This overlap is even greater for women than for men. Informal workers typically lack the social protection afforded to formal paid workers, such as worker benefits and health insurance, and typically work under irregular and casual contracts. Literature indicates labour market rigidities, poor skill levels, increasing competition from imports as the factors inducing creation of informal employment and decline of formal employment opportunities. Labour market rigidity is blamed on the multiple labour legislations that deters the hire and fire policy. But is labour laws a hindrance? Comparison was made between State-wise distribution of informally employed in the manufacturing sector the labour reform index which shows that even when the labour reform index is high indicating that even in States like Gujarat where the stringency of labour regulations was lowered by procedural changes,…show more content…
Creating an ambience that would encourage even micro and small enterprises to register and realize that this cost of formalization is coming with benefits of access to finance, better infrastructure, market information, government incentives, a platform for formal association, providing them legal framework, efforts to overcome uncertainty in financial returns and safety nets for them as well as their workers. This to a large extent will help to overcome challenges to informalisation not only in unorganised sector but also arrest growth of informal employment in organised enterprises. 3. This in turn will inculcate a tradition of regulatory compliance in terms of taxes and labour laws. This will not only help to increase the tax base but also help government finance minimum social security cover for workers in those enterprises that still prefer to stay outside the ambit of becoming organised and providing formal employment. 4. Lastly, the trend of informalisation would see a reversal with an improvement in skill levels of the workforce that match the requirements of the job market and at the same time improve the bargaining power of the workforce to settle for decent wages, social security and job

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