Question

The informal sector is becoming an ever-larger part of the urban economy. Just as much as some benefits accrue to the individuals belonging to the informal sector, there are benefits that accrue to the formal sector as a result of the existence of the informal sector as well. On the other hand, duality, inequality and urban poverty also result from the existence of the informal sector. Distinguish between the urban formal and informal sectors, and discuss both the positive and the negative aspects of the informal urban labor market.

Write an essay, to distinguish between the urban formal and informal sectors, and discuss both the positive and the negative aspects of the informal urban labor market

Answer 1

DISTINGUISH BETWEEN URBAN FORMAL AND INFORMAL SECTOR

Formal sector activities are the activities which are taxed and monitored by the government and the activities involved are included in the gross domestic product (GDP). In contrast to the formal economy, informal sector is the sector which is neither taxed nor included in the GDP and GNP of the country.

Formal urban sector represents all jobs with specific working hours and regular pays and the worker's job is assured. The workers are employed by the government, state or private sector enterprises. It is a licensed organisation and is liable to pay taxes. It includes large scale operations such as banks and other corporations. Coversely informal or unorganised sectors are the ones where the employees or the workers do not have the regular working hours and wages and are exempted from taxes. It is mainly concerned with the primary production of goods and services with the primary aim of generating employment and income on a small scale. A street vendor selling his farm products on the street to generate and earn his daily bread is an example of an informal economy. Ragpickers, moneylenders, brokers are considered a part of an informal urban economy.

Informal urban sectors are deemed low with low production value. It has less remunerative unlike the formal sector. The latter provides incentives such as bonuses, paid leaves and fixed working hours not to forget maternity leave which is devoid in informal sector , there are no such incentives. Moreover, it lacks security both legally and economically.

Therefore, it is concluded that Formal sectors are legalized and workers have social protection, economic security and have certain incentives while those of informal sectors do not possess such privileges.

ASPECTS OF INFORMAL URBAN LABOR MARKET

ADVANTAGES:-

1) Ease of entry.

2) Reliance on indigenous resources.

3) Family ownership of enterprises.

4) Small scale of operation, often defined in terms of hired workers less than (say ten).
5) Labour intensive methods of production and adapted technology.
6) Skills acquired outside the formal school system.
7) Unregulated and competitive markets.
8) No tax burden.

DISADVANTAGES:-

1) No paid leaves.
2) No social security schemes.

3) No safe working conditions.
4) No security of tenure.
5) No fixed pays.
6) No social protection.