Informal Employment in Countries in Transition: A conceptual framework

In the past few years the informal sector in countries in transition has increasingly become the focus of research, public policy and the media. The term ¿informal sector¿ has been used to describe an extremely wide spectrum of activities, which do not necessarily have much in common, such as tax evasion, corruption, money laundering, organised crime, bribery, subsistence farming, barter, petty trade, and the stealing of state property. This is problematic for the design of public policy as these activities may raise very different (and conflicting) policy issues. This paper provides a framework with which to analyse these different types of ¿hidden¿ activities in order to design appropriate social, labour market, fiscal, and other policies. We build on the concepts and definitions of the System of National Accounts (1993), to develop a new conceptual framework that distinguishes between four types of ¿hidden¿ activities: informal activities, which are undertaken ¿to meet basic needs¿; underground activities, which are deliberately concealed from public authorities; illegal activities, which generate goods and services forbidden by the law; and household activities, which produce goods and services for own-consumption. We provide an example of how this concept of informal activities can be operationalised to analyse informal employment, and apply it to the Georgia Labour Force Survey (1999) data. Preliminary results reveal that more than half of Georgia¿s employed population works informally.