Anonymous

What Is The Difference Between A Formal Business Sector And An Informal Business Sector?

4

4 Answers

Arianna Vaccaro Profile
Arianna Vaccaro answered
The difference between a formal business sector and an informal business is best explained by first describing the formal business sector.  A formal business sector is the sector of an economy that encompasses all jobs with normal hours and regular wages.  In other words, a formal business economy is comprised of the recognized income sources on which income taxes must be paid.

An informal business sector is the opposite of a formal business sector.  An informal business sector is the part of an economy that is not taxed, not included in any gross national product, and not monitored by any form of government.  In developing countries, the majority of the working population capable of holding jobs earn their income through self-employment in the informal business sector.

People do not always choose to work in the informal sector.  Sometimes their earning opportunities are scarce.  They may be unable to be hired, perhaps legally, by an employer in a formal business sector.  They may only be able to work a few hours a day through temporary employment for low wages.

While working in the informal business sector can be a coping or survival strategy for individuals, participating in the informal business sector can be an unofficial earning strategy for businesses looking to evade taxes and avoid labour regulation and the need for company registration.

Terms such as ‘under the table’ or ‘off the books’ typically are used to refer to market activities in the informal business sector.  The term ‘black market’ is used to describe that part of an informal business economy in which contraband is traded.
Mehreen Misbah Profile
Mehreen Misbah answered
The first and foremost difference between a formal business sector and an informal business sector is the fact that a formal business sector employs the personnel formally and officially with the involvement of the institution. On the contrary, an informal institution involves the principle of self-employment. Secondly a formal business sector is capital-intensive with a smaller workforce. Generally the functioning of the business is mechanized. On the other hand, an informal sector is usually labor-intensive with a very paltry use of tools and equipment. A formal sector also promises a regular pattern of working hours and fix certain wages for a particular period of time while an informal sector has uncertain working hours and unfixed wages. Moreover the standard of products of a formal and informal business sector also differ with the formal sector having a higher quality while the informal sector does not produce a very high quality of goods.

Answer Question

Anonymous