Measurement and mirage: The informal sector revisited

Recent years have seen rapidly expanding scholarship and policy advice on the causes and consequences of informality, relying on the increasing availability of comparative measurements of informal sectors. This has created an impression of a consensus around a clearly conceptualized and quantified object of study – that when we talk about the informal sector, we know what we are talking about. In this article I argue that this impression is largely a mirage. I suggest that underneath increasingly accepted measurements, and actively masked by them, there remain both a fundamental conceptual confusion and substantial diversity in understandings of what the informal sector is. Questions of definition have been moved “downstream” into the specifications of statistical models and measurements, resulting in a lack of transparency and the emergence of feedback loops between common conceptions and methodological assumptions. This has led a large part of the current literature on informal sectors to generate potentially spurious insights that feed into substantive development policy discussions around taxation, registration and social protection. I review the causes and consequences of these issues, drawing on two measurement methods, recent policy reports and new survey data from Ghana, and suggests ways forward.