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Revealed Informal Activity


  • Dimova, Ralitza

    () (University of Manchester)

  • Gang, Ira N.

    () (Rutgers University)

  • Landon-Lane, John

    () (Rutgers University)


What does it mean to be in the informal sector? Many characterizations have been used in the literature, for example, firms that are unregistered or employ a small workforce or firms/economic enterprises that do not have access to formal capital markets. But many people participate in both formal and informal activities, while classification of participation is often based on primary employment. This creates limitations to the analytical power of existing measures of informality. We develop a method for assigning households to the informal sector by inferring informal sector activity using income and expenditure surveys. We apply this method to the case of Bulgaria using LSMS income and expenditure surveys before and after a significant economic reform and compare it to those made using other indicators of informal sector activity. Our work shows that the informal sector acts as a buffer for households during periods of crisis when formal sector employment opportunities are limited. It shows the limitations of alternative stylized measures of informality in assessing the vulnerability of households involved in the informal sector, especially during periods of extreme economic hardship.

Suggested Citation

  • Dimova, Ralitza & Gang, Ira N. & Landon-Lane, John, 2011. "Revealed Informal Activity," IZA Discussion Papers 5607, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp5607

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    Other versions of this item:

    • Ralitza Dimova & Ira N. Gang & John Landon-Lane, 2011. "Revealed Informal Activity," Working Papers 296, Leibniz Institut f├╝r Ost- und S├╝dosteuropaforschung (Institute for East and Southeast European Studies).

    References listed on IDEAS

    1. Ira N. Gang & Ralitza Dimova, 2004. "Self-Selection And Earnings During Volatile Transition," Departmental Working Papers 200409, Rutgers University, Department of Economics.
    2. Grimm, Michael & Gunther, Isabel, 2005. "Inter- and Intra-household Linkages Between the Informal and Formal Sector: A Case Study for Urban Burkina Faso," WIDER Working Paper Series 014, World Institute for Development Economic Research (UNU-WIDER).
    3. Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, vol. 79(3), pages 519-535, June.
    4. Dimova, Ralitza & Gang, Ira N. & Landon-Lane, John, 2005. "The Informal Sector During Crisis and Transition," WIDER Working Paper Series 018, World Institute for Development Economic Research (UNU-WIDER).
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    1. repec:fau:fauart:v:67:y:2017:i:2:p:140-164 is not listed on IDEAS

    More about this item


    informal labour markets; crisis; Bulgaria;

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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