Introduction to the informal economy

This opening chapter to a Modern Guide to the Informal Economy addresses three key questions. What is the informal economy? Why should it be studied? And what is important to know about this sphere? Reviewing the competing enterprise-, jobs- and activity-based definitions, the informal economy is defined as socially legitimate paid work that is not declared to, hidden from, or unregistered with, the authorities for tax, social security and/or labour law purposes when it should be declared. The consequences of its existence for various groups, namely formal enterprises, informal businesses, formal workers, informal workers, customers of the informal economy, governments, and the wider economy and society, are then reviewed. This reveals that the negative consequences undoubtedly outweigh any positive consequences. It is therefore important to understand its extent, who engages and why they participate to know how to tackle this realm.