The Informal Sector Revisited : A Synthesis Across Space and Time

The concept of the informal sector (IS) has recently received widespread and growing attention. Indeed, it may be fair to talk about a re-emergence of the concept in the debate related to social protection and poverty reduction. We argue that with this new found prominence, it is even more important that we better understand the IS. Only with an improved understanding of the issues and dimensions of the IS can we design policies and programs which effectively address the needs of workers engaged in informal sector activities. This paper is an attempt to contribute to such an increased understanding by highlighting important pieces in understanding the concept of the IS across (1) time, briefly discussing how our view of the concept of the IS has evolved over time and (2) space, presenting empirical evidence and stylized features across regions. After presenting the current state of knowledge of the IS, we distill key aspects and issues of the IS and discuss their implications for policy design and implementation, especially in the context of fighting poverty and improving livelihoods of the poor in developing countries.