"Connecting communities, empowering nations: Unifying the Regional and Global Economy ."

Introduction

The informal sector plays a significant role in the US economy, accounting for approximately 7.3% of GDP, or $1.575 trillion at GDP PPP levels. Despite its size, this sector often lacks regulation, taxation, and social protections. As a result, informal workers can face challenges in accessing essential services, while informal businesses struggle to grow and compete with their formal counterparts. In recent years, efforts have been made to formalize and support the informal sector through measures such as simplifying the tax code, expanding access to financing, and providing training and technical assistance. Looking ahead to 2024, while the COVID-19 pandemic poses uncertainties, there are also factors that could drive the growth of the informal sector, including the rise of the gig economy, increasing use of technology, and growing demand for informal businesses’ goods and services.

Challenges Faced by the Informal Sector

The informal sector in the USA faces several challenges, primarily centered around the lack of regulation and access to formal benefits. Informal workers are often excluded from essential services such as healthcare, education, and pensions due to their lacking formal employment status. This leads to precarious living conditions and limited social protection. Informal businesses also face obstacles in accessing growth opportunities, financing, and competing with formal businesses that may have more resources and established networks.

Efforts to Formalize and Support the Informal Sector

Recognizing the importance of the informal sector, efforts have been made to formalize and support it in recent years:

1. Simplifying the tax code: The Small Business Tax Simplification Act of 2019 aimed to streamline the tax process for small businesses, making it easier for them to comply with tax regulations. This reform could incentivize informal businesses to formalize their operations by reducing administrative burdens and encouraging compliance.

2. Expanding access to financing: The Small Business Administration (SBA) provides loans and financial assistance to small businesses, including informal enterprises. By facilitating access to capital, informal businesses can obtain the financial resources they need to grow and transition into the formal sector.

3. Providing training and technical assistance: The SBA, along with other organizations, offer training programs and technical assistance to support small businesses. These initiatives help informal business owners understand the requirements and processes involved in formalization, while also equipping them with the necessary skills to succeed in the formal sector.

Prospects for the Informal Sector in 2024

The COVID-19 pandemic has significantly impacted the informal sector in the USA, leaving its prospects for 2024 uncertain. However, there are several factors that could contribute to its growth and recovery:

1. The rise of the gig economy: The gig economy, characterized by short-term contracts and freelance work, has been rapidly expanding. This trend presents new opportunities for informal workers, who can join platforms and engage in flexible employment arrangements, thus contributing to the growth of the informal sector.

2. The increasing use of technology: Technological advancements have revolutionized the way informal businesses operate. From online marketplaces to digital payment systems, technology provides a means for informal entrepreneurs to streamline their operations, market their products or services, and reach a wider customer base.

3. Growing demand for goods and services from informal businesses: Consumers are increasingly seeking out goods and services from informal businesses due to factors such as unique offerings, competitive pricing, and a desire to support local economies. Platforms like Uber and Airbnb exemplify this trend by connecting consumers with informal service providers.



The informal sector in the USA plays a significant role in the economy, representing 7.3% of GDP. While it confronts challenges related to regulation, taxation, and social protections, efforts have been made to formalize and support the sector. Simplifying the tax code, expanding access to financing, and providing training and technical assistance have been instrumental in encouraging informal businesses to transition into the formal sector. Looking ahead to 2024, the sector’s prospects may face uncertainties due to the COVID-19 pandemic. Nonetheless, the rise of the gig economy, increasing use of technology, and growing demand for goods and services from informal businesses present opportunities for the sector’s growth and recovery.

References:

1. ILO. (2018). WOMEN AND MEN IN THE INFORMAL ECONOMY: A STATISTICAL OVERVIEW [PDF]. International Labour Organization. https://www.ilo.org/wcmsp5/groups/public/—dgreports/—dcomm/—publ/documents/publication/wcms_626831.pdf.

2. Small Business Administration. (n.d.). Financing Options for Small Businesses. Small Business Administration. https://www.sba.gov/funding-programs/loans.

3. Small Business Administration. (n.d.). Starting & Managing. Small Business Administration. https://www.sba.gov/business-guide/starting-managing-business.

4. Shapiro, S. (2020). The informal sector will keep popping up – unless we learn from Covid-19. World Economic Forum. https://www.weforum.org/agenda/2020/05/informal-sector-jobs-work-covid19/.

5. Rowley, D., Behrens, B., & Evans, D. (2019). Uber-gizing payments: The digital transformation of national cash economies. Technology in Society, 57, 101117. doi:10.1016/j.techsoc.2018.12.004.