Measurement and Mirage: The Informal Sector Revisited

Recent years have seen an increasing availability and usage of measurements of informal sectors as the basis of scholarship and policy advice on the causes and consequences of informality. This has created an impression of a consensus around a clearly conceptualised and operationalised object of study – that when we talk about the informal sector, we know what we are talking about. This paper argues that this impression is largely a mirage. It suggests that underneath increasingly accepted measurements, and actively masked by them, there remains a fundamental conceptual confusion and continuing diversity in understandings of what the informal sector is. What should be questions of definition have been moved ‘downstream’ into the specifications of statistical models and measurements, resulting in a lack of transparency and the emergence of feedback loops between common conceptions and methodological assumptions. This has led a large part of the current literature on informal sectors to generate potentially misleading insights into substantial development policy discussions around taxation, registration, and social protection. This paper reviews the causes and consequences of these issues and suggests both best practices and revised definitions in order to address them.