The Size of the Informal Economy

What is the size of the informal economy in the world? In general, data on the size, composition and contribution of informality is limited and international comparison of the scale of the phenomenon is difficult due to different measurement strategies.⁹ For this reason, the main findings are often supported by indirect measurement methods.

In general, as we saw above, estimates of the size of the informal economy can be in terms of income or in terms of employment. Chen (2007) reports that informal employment is about one-half to three-quarters of non-agricultural employment in developing countries.

The estimate is likely to increase if we include the agricultural sector and other Asian countries in addition to India. Schneider (2005), using a combination of the DYMIMIC and currency-demand approach, reports results for 110 countries and reports data. The estimates show that the informal sector has increased considerably in African countries, but also in other developing economies. Upward trends are also found for transitional and developed economies.

Figure 1.The Size of the Informal Economy around the World Schneider

The increase in informality is partially confirmed in Perry et al. (2007) for a subset of countries. The general trend of informality for Latin American and the Caribbean suggests an increase over time even if differences exist between informal salaried and self-employed (Figure 1.9 of the report). See Table 3. A similar trend is confirmed in ILO (2002)¹²Rei and Battacharya (2008) points out how data availability on informal employment is usually available for a limited set of countries, compared to the wider estimates of the informal economy provided in Schneider (2005). Also Box 1.3 in Perry et al. (2007) shows that when official statistics are available they may conflict with unofficial measurement of informality as in Schneider (2005).

Table 1.Informality

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