Measuring the Informal Economy

This article presents results from a study of the informal economy carried out by interviewing a national probability sample of approximately 2100 families. Each family was asked about purchases it had made from vendors who were selling goods and services on the side. A number of questions were asked about each vendor to help verify that vendors were indeed functioning as informal suppliers. Although not all characteristics had to be present for any single supplier, informal suppliers were characterized as individuals who had casual record-keeping systems, lacked a fixed place of business, and relied upon word of mouth and other casual means of advertising. Typical of such vendors are automobile mechanics operating in a home garage, produce sellers operating from a roadside stand, and craftsmen who operate from a pickup truck or in a home workshop. It was found that about $42 billion in informal economic activity took place in 1981 and that four out of every five American families purchased something from an informal vendor. Home repairs, accounting for over $12 billion, constituted the largest form of informal economic activity. The second most important was food sales.