Informal employment consists of those economic activities which are neither taxed nor regulated by the government. Many employers and employees find this type of work beneficial as it allows them to increase their take home pay. The informal sector can be both positive and negative for the local economy. Positive in that it provides an income source for individuals who otherwise might not be able to find a job. However, these informally employed people will not receive benefits like minimum wage, regulated hours, and pensions. Informality can also be negative because it means lowered tax revenue for governments, leaving them with insufficient funds for public services and infrastructure. This article examines the countries with the highest rates of non-agricultural, informal employment.
Countries with Highest Level of Informal Economic Activity
Uganda, the only African country on the list, is the number one in the high informality of the workforce. This country sees 94% of its population working in unregulated and untaxed jobs. The majority of these jobs are in trade and is followed by the manufacturing and services industries.
Taking the number 2 position is Guatemala with 74% of people involved in informal employment as their main source of income. This country is in second place worldwide but has the highest rate in Central America. A common job here could be a street vendor, somebody who sells local snacks or drinks from a cart on the street.
The next country follows close behind Guatemala, Honduras. These two countries are so close that they share a border. Honduras has a 73% rate of informal employment.
Staying in Latin America, but moving further south is number 4. The Peruvian economy is 69% informal. This is the leading country in informality within South America. Many informally employed women in Peru have migrated from rural areas to the capital of Lima in order to find work as private housekeepers or in garment factories. They are often paid below minimum wage and expected to work longer than the legally mandated work week.
El Salvador, another Central American country, is next on the list. It also has a majority of the population working in informal jobs, 65% to be exact. The rate of informality in the next two countries is very similar to El Salvador. Paraguay and Colombia, both South American countries, each have a 64% rate of informal sector employment.
Mexico is number 8 on the list and has the highest rate of informal economic activity in North America. Here, 54% of the population works informally. The formal economy has been improving in recent years, yet Mexicans seem to prefer working in the informal sector. These jobs range from selling goods (snacks, clothes, pirated movies, etc.) to street entertainment (clowns, jugglers, comedians, etc.).
The Other Countries
The remaining countries are mainly located in Latin America although there are a few outside of that region. High levels of unregulated, untaxed economic activity also occur in Palestine (52%), Dominican Republic (51%), Albania (43%), Thailand (43%), Panama (40%), Brazil (37%), and Uruguay (33%).
As the list reflects, high rates of informal economic activity are largely found in developing countries. This fact can be a burden for the formal sector employees of the country as they are faced with higher tax withdrawals in an attempt to make up the difference. When the majority of the labor market is informal, this means that the majority of citizens have no regard for local laws and regulations. One of the consequences of high levels of informality is potentially hindering competition and growth in the formal economy. This matter may overshadow the possible benefits that informal jobs offered to individuals living in poverty.