Part 4 of 6: Understanding the Informal Economy

To survive, the urban poor have to find work that provides a cash income. In urban contexts, all basic services are commodities that have to be purchased. Finding income-earning opportunities that are more stable, less dangerous, and provide an adequate return is central to reducing their poverty or moving out of poverty. Yet we actually know very little about the difficulties facing low-income urban dwellers in securing sufficient income and what would help them to do so. This is all the more remarkable when poverty is defined by income-based poverty lines.

In part, this lack of knowledge is because such a high proportion of low-income groups work in what is termed the 'informal' economy, on which little or no data are available. In part it is because the official data collected on employment has never been able to capture the variety, complexity, and diversity of income-earning sources, working conditions, and hours and their implications for health and income levels. But there are case studies that show the struggle of households to earn sufficient income (often involving children, too, and having to withdraw them from school), the often devastating impact of illness, injury, or premature death on household income, and the societal limits faced by women in labour markets (especially formal jobs other than low-paying maids). Of course, this is also part of a larger global picture where enterprises reduce their costs by employing temporary or casual workers (or day labourers) and drawing on suppliers and services from the informal economy.

There are a few detailed studies that provide us with insights into the difficulties faced by those working in the informal economy — for instance, the importance of social networks for getting employment and the more powerful local people who prey on street traders and other own-account workers or demand payment from them. For many households, the home has great importance as the location for income-earning work, too — especially for women. Case studies also show that street traders face increasing pressure in central city areas and may be forced out to peripheral (less profitable) places to trade.

We know remarkably little about the ways in which income circulates in low-income settlements and how this is influenced by relations with the wider city and the drivers of economic growth. There is also the way that intense competition for income-earning sources reduces returns. We also know remarkably little about what best supports low-income groups in getting higher incomes — although in particular case studies, among the factors highlighted are the availability of credit and being able to have a bank account, the extension of a reliable supply of piped water and electricity to the home (so useful for many income-earning opportunities), good social contacts, literacy, and the completion of secondary school.

Next: Concerning Inequality

Summarized from Urban Poverty in the Global South: Scale and Nature, by Diana Mitlin and David Satterthwaite, Routledge, January 25, 2013.

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