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Informal Sector

Informal Sector. Ray Way Alberto Navarro. What is the Informal Sector?. The economic activity that is not taxed, monitored, or regulated by the government. Informal sector jobs are generally low-wage and low-productivity work. These jobs include: Food Vendors Street Show Entertainers

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Informal Sector

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  1. Informal Sector Ray Way Alberto Navarro

  2. What is the Informal Sector? • The economic activity that is not taxed, monitored, or regulated by the government. • Informal sector jobs are generally low-wage and low-productivity work. • These jobs include: • Food Vendors Street Show Entertainers • Garbage Collectors Psychics • Taxi Drivers Fruit and Vegetable • Barbers Vendors • Recycling

  3. Peru’s Urban Growth

  4. Causes of Informal Sector • Urbanization: Large numbers of rural residents moving to the cities in search of work. • The urban population of Peru in 1960 was 46.8%, by 2005 the figure had reached 74.6%. • The formal sector does not provide enough jobs to absorb the inflow of rural-urban migration. • The cost of doing business legally is too high

  5. Causes of Informal Sector (Cont.) • The time it takes for registering and engaging in production is too long. • In “The Other Path,” by Economist Hernando de Soto, he documented that it took 100 administrative steps and a full year to register a small garment company in Peru. • The lack of judicial and legal efficiency increases the size of the informal sector.

  6. Red Tape • Excessive Regulations • Filling Excessive Unnecessary Paperwork • Obtaining Unnecessary Licenses • Having multiple people or committees approve a decision • Makes a process longer and tedious

  7. Growth of Informal Sector

  8. Hernando de Soto’s Study • Fictitious Clothing Co. • 10x’s bribes were solicited • 289 days • $1,231 expenses • 32 Min. monthly wages • Difficult for people with modest means to open a small buss.

  9. Disadvantages of Informal Sector for the Government • They don’t pay taxes. • They don’t follow legal, health, and safety procedures. • Although it provides primary or secondary income, Informal work does not contribute to human capital; which is necessary for better wages and a modern economy.

  10. Disadvantages of Informal Sector for the People • 75%-80% of those employed in the informal sector earn less than the poverty level. • Can’t request: • Municipal Services • Utilities • Obtain Titles to Property • Apply for Credit • No Legal Recourse to Agreed Contracts

  11. Disadvantages (Cont.) • When subcontracted they have no rights to: • Job Security • Vacation Days • Minimum Wage • Sick Days • Personal Days • Benefits

  12. Advantages of Informal Sector for the People • Provides many services cheaply and efficiently. • Many low-income housing is produced in the informal sector. • Save money and time • Can be sub-contracted by companies to work for them. • Women are disproportionately represented in the informal sector.

  13. Advantages for Women • Food Services • Domestic Washing and Cleaning • Tourism • Petty Trading • Dressmaking • Companionship • Lower Entry Barriers • Flexible Hours for Childcare • Family Survival • 67% of Informal Sector are Women • Lack of formal Education • Credit • Technical training

  14. Video Clips • http://www.youtube.com/watch?v=McSdLTno7tw • http://www.youtube.com/watch?v=gWf4SvO_5Ww

  15. Conclusion • The informal sector, while not legal and unaccountable to tax collection and government health, safety, social security, and laws, it provides a secondary economy in developing countries in Latin America that helps to reduce unemployment, increase income, and provide goods & services that other wise would cost more legally.

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