Revealed Informal Activity

Ralitza Dimova (), Ira Gang and John Landon-Lane ()

No 296, Working Papers from Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies)

Abstract: 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 partici-pation is often based on primary employment. This creates limitations to the analytical power of existing measures of informality. We develop a method for assigning house-holds to the informal sector by inferring informal sector activity using income and ex-penditure 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 styl-ized measures of informality in assessing the vulnerability of households involved in the informal sector, especially during periods of extreme economic hardship.

Pages: 21
Date: 2011-02
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Citations: View citations in EconPapers (3)

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Working Paper: Revealed Informal Activity (2011)
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