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The term “informal economy” is a subject of continuous and significant interest, especially within the context of developing countries. This is due to its significant link to the national economic policies, which are crucial for achieving inclusive growth and reducing social inequality.
When considers the definition of the informal economy, it might bring to mind economic systems, comprising illegal, tax-evading, or “gray-area” businesses, such as telephone or internet scams, drug trafficking, gambling, and human trafficking. However, based on the definition provided by the International Labour Organization (ILO), the informal economy refers to “All economic activities by workers and economic units that are, in law or in practice, not covered or are insufficiently covered by formal arrangements.” This definition primarily encompasses small-scale, household-level, or individual businesses with a small number of workers. Moreover, the International Monetary Fund (IMF) defines the informal economy as “activities that have market value and would add to tax revenue and GDP if they were recorded.”
The terms “informal economy” and “informal labor” are distinct. Informal labor is a broader concept, referring to the total number of jobs outside the formal system, regardless of whether the work is performed within a formal or informal business. For example, a daily-wage employee in a legally registered business who is not a permanent worker and, therefore, does not receive social welfare benefits from their employer, is considered an informally employed.
Recent estimates from World Economics on the proportion of the informal economy (as a percentage of GDP) indicate that most countries in Southeast Asia have a significantly higher share than developed countries in East Asia. For instance, Myanmar (52.6%), Cambodia (49.1%), and Thailand (42.1%) have much higher percentages compared to countries like Japan (10.3%), Hong Kong (14.7%), and Taiwan (19.7%).
Structurally, informal labors in Asia are mostly concentrated in the agricultural or service sectors, such as farmers and street vendors. Furthermore, education level is a critical factor influencing the opportunity for formal employment. A staggering 90% of labors with a primary school education are engaged in informal work, compared to only 31% of those with a tertiary education. This highlights a persistent issue of unequal access to educational opportunities, which forces many workers to rely on the informal economy for their living.
The significantly lower proportion of the informal economy in developed Asian countries like Japan and Hong Kong is not merely coincidental, but it reflects the strong correlation between economic structure and social development. Enhancing industries and promoting inclusive human capital development are crucial for creating more formal sector jobs. This transition allows workers to move from low-productivity agricultural sectors to more productive manufacturing sectors, which, in turn, contributes to sustainable economic development without inequality.
Author:
Mr. Atit Saerepaiboonsub
Senior Researcher
International Institute for Trade and Development (Public Organization)
www.itd.or.th
Publication: Bangkok BIZ Newspaper
Section: First Section/World Beat
Volume: 38 Issue: 12981
Date: Wednesday, Sep. 3, 2025
Page: 8 (bottom)
Column: “Asean Insight”
