The informal sector consists of small, unregulated businesses and workers that operate outside official rules and regulations in order to avoid taxes, licensing, and other requirements. Reasons for operating in the informal sector include unemployment, insufficient income, and problems with government. The informal sector provides opportunities for employment but also poses issues like low productivity, unsafe conditions, and tax evasion.

1. The Informal Sector

2. “Informality is the symptom that something is wrong in
the institution of government, and perhaps even of
society as whole. It indicates that much of the law
has lost it legitimacy, for it has become virtually
impossible for poor people to comply with all the
requirements to live and work legally”
– Bernardo Villegas
The Informal Sector

3. “ Very small scale units producing and distributing goods and
services, consisting largely of independent , self-employed
producers, some of who also employ family labor and/or a
few hired workers or apprentices, which utilize a low level of
technology and skill, which therefore operate at low level of
productivity , and which generally provide very low and
irregular income, and highly unstable employment to those
who work on it.”
The Informal Sector according to
Internationl Labor Organization

4. • It is the part of the
economy that is
intentionally hidden
from the view of the
government in order to
avoid taxes and
regulations or because
the goods and services
being produced are
illegal.
The Informal Sector

5. • Underground,
unofficial, hidden,
illegal, black, covert,
grey, dual, irregular,
invisible, parallel,
marginal, moonlight,
shadow, second,
unobserved, twilight,
subterranean, and
unrecorded
The Informal Sector

6. • The income generated
by this sector of the
economy is not
considered in the
national accounting.
The Informal Sector

7. Informal sector employment is
made up of:
• Employment excluded from formal sector and
• Informal employment that are part of the
formal sector.

8. Reasons for existence of the
Underground Economy
1. Unemployment
2. Insufficient Income
3. Problems with the
government

9. • Low levels of productivity and
employment
• People look at their jobs as temporary
• Health and safety are always at risk
• More labor-intensive
• Non-payment of taxes
• Workers are paid below the minimum
wage
• Absence of social protection and
benefits
• The company or workers are not
registered
• The business is not considered a legal
entity which is independent from its
owner or owners
• It is usually owned and managed by
blood relatives
• It is usually not well-organized and has
only a few workers.
Characteristics of the Informal Sector

10. Formal sector may be attributed
to:
• Failure to declare the occupation
of workers of the company
• Temporariness of the job
• Insufficient number working
hours or wage compared to what
had been officially declared
• Illegitimacy of the business
• Operation of business beyond the
official status of the business
• The business does not comply
with labor laws

11. Employment Categories in the
Informal Sector
• Homework
– A person who works at, or near his/her home in
the production of goods for a fixed agreement
with an employer or contractor. They are usually
pain on a piece-rate basis.

12. Employment Categories in the
Informal Sector
• Self-employed or self-account worker
– A person who has no employer or contractor and
operates business on his/her own. He/she does
everything, has no paid employee and assisted
only by family members on occasional basis.

13. Employment Categories in the
Informal Sector
• Employer
– A person similar to a self-employed but employs
one or more paid employees

14. Employment Categories in the
Informal Sector
• Employee
– A paid employee in an informal enterprise.

15. Employment Categories in the
Informal Sector
• Unpaid family worker
– One who works without pay in a farm or business
operated by a member of his/her family. He/she
works on occasional basis.

16. • Direct Approach
-take surveys
-auditing tax returns
Approaches to measuring the Informal
Sector

17. • Indirect or Discrepancy
Approach
-discrepancy between
individual households
and the aggregate
national accounts
-seen in the monetary
market, in the amount of
cash used in a country
Approaches to measuring the Informal
Sector

18. Effects of the Informal Sector to the
economy
• Positive
1. Responds to the demand of the
urban services and small-scale
manufacturing
2. Provides economy with the
operative and entrepreneurial spirit
3. Absorbs those who do not have
regular jobs, who lack skills and
education, and those who are
searching for additional income.
4. Contributes to the national income.

19. Effects of the Informal Sector to the
economy
• Negative
1. Limit on government
restrictions on the economy
and society
2. Many transition economies
would perform at much lower
level of production
3. Indicates that there is a weak
relationship between the
country and its people

20. Reasons for the existence of the
Informal Sector
• Uneven economic development
• Incapability of the government to generate
jobs.
• Non-payment of taxes and other expenses
required by law provides financial advantage.
• They do not want to comply with the laws and
regulations of the government.
• Weak or ineffective implementation of laws.

21. • Players in the informal
sector.
• Government and
economy
• Consumers
Issues and Problems in the Informal Sector

22. Laws and Programs Related to the
Informal Sector
• Republic Act 8425/Social Reform Policy
Alleviation Act of 1997.

24. Journal Reflection
Too much bureaucracy, red tape, and corruption
reportedly hampered the growth of the Philippine
economy that resulted in the increase of the
informal sector. What can you possibly do?
Illustrate your answer by drawing an editorial
cartoon. Explain your drawing using 2-3 sentences
only.