informal-sector theories

This is the dominant paradigm in use for explaining poverty and inequality in Third World cities. There have been many versions since its first formulation in 1971, but most focus on differences in productivity and earnings associated with large- and small-scale enterprises. Employment in large-scale (formal) enterprises is associated with high wages, high skill levels, modern technology, unionization, and social security protection, while small-scale (informal) enterprises lack these characteristics. The term ‘formal’ is often taken to mean waged and salaried labour, while ‘informal’ refers to self-employment, one-person enterprises, artisanal production, and domestic service. Note, however, that in this literature both terms refer to paid, officially registered employment, although in advanced industrial societies ‘informal’ work has been taken to mean work that is not declared to official censors or the tax system, and may even include unpaid labour in the household. See also informal economy ; labour-market segmentation.