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.
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.
