Size and measurement of the informal economy in 110 countries around the World

Size and measurement of the informal economy in 110 countries around the World

Global survey on the size and importance of the informal sector

This study shows that the informal sector - where income is unreported and illegal activities such as smuggling and fraud go undetected – is large and growing in many developing countries.

Estimates of the size of the informal economy in 110 developing, transition and OECD countries are presented. This is especially hard to measure. “Underground” labor may consist of a second job after (or even during) regular working hours, informal economy work by individuals who do not participate in the official labor market, and employment of people (e.g. clandestine or illegal immigrants) who are not allowed to work in the official economy. According to the study, 48 million work illicitly in European OECD countries and the productivity of these workers quite likely is considerably higher than those in the official economy. In Italy other estimates put the informal labor force at 30-48% of the official labor force. Comparable figures are not available for developing countries but there is no doubt the numbers are very high.

It finds that:

  • the average size of the informal economy, as a percent of official GNI in the year 2000, in developing countries is 41%, in transition countries 38% and in OECD countries 18%
  • a large burden of taxation and social security contributions combined with government regulations are the main determinants of the size of the informal economy
  • a government aiming to decrease informal economic activity has to first and foremost analyze the complex and frequently contradictory relationships among consequences of its own policy decisions

An online discussion on this paper was organised by the World Bank's Rapid Response Unit.