The Urban Informal Sector

To understand about the urban informal sector, lets define first what is informal sector. Informal
Sector is defined as a part of country’s economy that is characterized by small competitive
individual or family firms, petty retail trade and services, since usually informal sector labors are
self-employed.
They are free entry, since many informal workers do their businesses in unprotected and
unsecured places thus, they are neither taxed nor monitored by any form of government. To put
simply, we can say that informal sector refers to those sectors, where social security of related
stakeholders is almost missing, and in this sense, it differs from the formal sector.

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One striking feature of the urbanization in developing countries is the existence of an
unorganized, unregulated, and mostly legal but unregistered informal sector, following
observations in several developing countries that massive additions to the urban labor force
failed to show up in formal modern-sector unemployment statistics. With the unprecedented rate
of growth of the urban population in developing countries expected to continue and with the
increasing failure of the rural and urban formal sectors to absorb additions to the labor force,
more attention is being devoted to the role of the informal sector in serving as a panacea for the
growing unemployment problem.

However, the informal sector continues to play an important role in developing countries,
despite decades of benign neglect and outright hostility. Many developing countries, about half
of the employed urban population works in the informal sector.

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In the Figure 7.8 it was shown the relative importance of informal unemployment in selected
cities. Wherein, most of these cities reflect the typical range of informal sector employment
share, from about 30% to 70%. The only exception is Ljubljana, a virtually developed city near
Austria and Italy.