The threats that the informal economy presents to firms operating in the formal economy include a higher percentage in terms of creation of employment, heighten innovation to infuse the inequality of opportunity in the industry, as well as lower costs of products.
What is an Informal Economy?
- The term "informal economy" refers to businesses that operate legally but do not fully abide by all tax, labor market, and product market restrictions.
- Like drug cartels, mafias, prostitution rings, and illicit gambling operations, they are not blatantly criminal organizations, but they do pose a serious threat to a nation's capacity to sustain its economy.
- Although the informal sector contributes significantly to the economies of emerging nations, it is occasion labeled as problematic and out of control.
- However, since the 1960s, the informal sector has been increasing quickly and offers important economic prospects for the poor.
- A significant policy question is how to incorporate the informal economy into the formal sector.
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