The Formalisation of Work Thesis: A Critical Evaluation

Abstract

The aim of this paper is to evaluate critically the popular prejudice that economic development is characterised by a natural and inevitable shift of economic activity from the informal to the formal sphere which culminates in full-employment (the formalisation of work thesis). To do this, we commence by showing not only that this end-state has never been achieved in most advanced economies but that some nations have now moved into a ‘post-formalisation’ stage of economic development characterised by informalisation. Following this, and drawing upon new empirical evidence from Southampton in the UK, the view that informalisation is due to marginalised populations adopting informal survival strategies out of economic necessity is refuted. Instead, informal work is found to be higher in employed households who conduct such work for mostly non-economic reasons. In consequence, we argue that unless it is accepted that societies are moving into an era of informalisation and policies embraced which recognise this shift, then many will be left excluded not only from employment but also from informal coping strategies.

Keywords: informal economy, informal sector, informalization, economic development

JEL Classification: O17