The Informal Economy: A Neglected Area in Islamic Economics
DOI:
https://doi.org/10.31436/ijema.v25i2.452Abstract
The informal economy has been neglected by Islamic economists. The neglect means the Islamic economic system being rebuilt is confined only to state and market domains. That existing paradigm is myopic. To understand and solve the real-world economic problems, we need to recalibrate and also focus on the informal economy. The purpose of this study, therefore, is to review the conception of the informal economy. With a better understanding of the concept, we hope that rebuilding of Islamic economics can become more holistic in approach. The informal economy is unique according to countries. The economic, political and cultural aspects have a strong influence on the dimensions of the informal economy. Based on the extant literature we also have identified the determinants of informal employment. The evaluation of the factors identified in this study reveals that government policies and efficiency, poverty issues, gender inequality, education and religiosity are the determinants of the informal sector employment. We then call for future research in Islamic economics to be geared toward understanding and addressing issues in the informal economy.References
Abd Aziz, Mohd Kuchairi, and Nur Layali Mohd Ali Khan. Country Report for Malaysia Regional Course on Statistics on Informality: Informal Economy, Work and Employment. Chiba, Japan, 6-10 July 2015.
Albrecht, J., L. Navarro, and S. Vroman. “The Effects of Labour Market Policies in an Economy with an Informal Sector.†The Economic Journal 119, no. 539 (2009): 1105-29.
Amin, M., and A. Islam. “Are Large Informal Firms More Productive Than The Small Informal Firms? Evidence from Firm-Level Surveys In Africa.†World Development 74 (2015): 374-85.
Amuedo-Dorantes, C. “Determinants and Poverty Implications of Informal Sector Work in Chile.†Economic Development and Cultural Change 52, no. 2 (2004): 347-68.
Angel-Urdinola, D.F., and K. Tanabe. “Micro-Determinants of Informal Employment in the Middle East and North Africa Region.†Social Protection and Labor Discussion Paper 1201, 2012.
Bagachwa, M.S.D. “The Informal Sector under Adjustment in Tanzania.†In Economic Research Bureau Workshop on Beyond SAPs in Tanzania: Successes, Failures and New Perspectives. Dar es Salaam, Tanzania, 2-4 August 1995.
Becker, Kristina Flodman. The Informal Sector. Stockholm: SIDA, Swedia, 2004.
Bernabè, S. Informal Employment in Countries in Transition: A Conceptual Framework. LSE STICERD Research Paper CASE056, 2002.
Binay, M. Optimal Informal Employment Ratio for Turkish Economy. Procedia Economics and Finance, 26 (2015): 598-602.
Blau, P.M., and W.R. Scott. Formal Organizations: A Comparative Approach. Palo Alto: Stanford University Press, 1962.
Charities Aid Foundation. World Giving Index 2013: A Global View of Giving Trends. 2013.
Chen, M.A. “Rethinking the Informal Economy: Linkages with the Formal Economy and the Formal Regulatory Environment.†DESA Working Paper 46 (2007): 1–12.
Chong, A.E., and M. Gradstein. “Inequality, Institutions, and Informality.†Inter-American Development Bank, Research Department Working Paper 516, 2004.
Dallago, B. The Irregular Economy: the ‘Underground’ Economy and the ‘Black’ Labour Market. London: Dartmouth Publishing Company, 1990.
Davies, R., and J. Thurlow. “Formal-Informal Economy Linkages and Unemployment in South Africa.†South African Journal of Economics 78, no. 4 (2010): 437-59.
de Soto, Hernando. The Other Path: The Invisible Revolution in the Third World. New York: I.B. Tauris, 1989.
Defourny, Jacques, and Victor Pestoff. “Images and Concepts of the Third Sector in Europe.†Working Papers Series 08/02. Liege, Belgium: EMES European Research Network, 2008.
Doğrul, H.G. “Determinants of Formal and Informal Sector Employment in the Urban Areas of Turkey.†International Journal of Social Sciences and Humanity Studies 4, no. 2 (2012): 217–31.
Edwards, B.K., and S.J. Flaim. “Measuring and Integrating the Shadow Economy: A Sector-Specific Approach.†Los Alamos National Laboratory, June 30, 2008).
Elveren, A.Y. “The Impact of the Informal Employment on the Social Security Deficits in Turkey.†World Journal of Applied Economics 1, no. 1 (2015): 3-19.
Feige, E.L. “Revised Estimates of the Underground Economy: Implications of US Currency Held Abroad.†Underground Economy; Global Evidence of Its Impact and Size (1997): 151-208.
Flórez, C.E. “The Function of the Urban Informal Sector in Employment: Evidence from Colombia 1984-2000.†Center for Economic Development Studies (CEDE) Working Paper 2002-04. Universidad De Los Andes, Colombia, 2002.
Gong, X., and A. van Soest. “Wage Differentials and Mobility in the Urban Labour Market: A Panel Data Analysis for Mexico.†Labour Economics 9, no. 4 (2002): 513-29.
Gouldner, A.W. Patterns of Industrial Bureaucracy. Glencoe, Illinois: Free Press, 1954.
Heintz, J., and D. Posel. “Revisiting Informal Employment and Segmentation in the South African Labour Market.†South African Journal of Economics 76, no. 1 (2008): 26-44.
Hishamh. “The Shadow Economy: Estimates For Malaysia.†Economics Malaysia, 2012.
http://econsmalaysia.blogspot.my/2012/05/shadow-economy-estimates-for-malaysia.html
Hussmanns, R. “Measuring the Informal Economy: From Employment in the Informal Sector to Informal Employment.†Working Paper 53, Policy Integration Department, Bureau of Statistics, International Labour Office, 2004.
Ihrig, J., and K.S. Moe. “Tax Policies and Informal Employment: The Asian Experience.†Asian Economic Journal 15, no. 4 (2001): 369-83.
International Labour Office (ILO). Statistical Update on Employment in the Informal Economy. Geneva: ILO Department of Statistics, 2011.
International Labour Office (ILO). “Transitioning from the Informal to the Formal Economy.†Report presented at the 103rd Session of the International Labour Conference. Geneva, 28 May-12 June, 2014.
International Labour Office (ILO). “The Dilemma of the Informal Sector: Report of the Director-General Part 1.†Report presented at the 78th International Labour Conference. Geneva, 5-25 June 1991.
Jie, S.W., H.H. Tat, A. Rasli, and L.T. Chye. Underground Economy: Definition and Causes. Business and Management Review 12 (2011): 14-24.
Kamaruddin, J.A., and M.N. Ali. “Measuring Contribution of the Informal Sector/Informal Employment to GDP in Malaysia: Development of Survey Instrument.†Expert Group on Informal Sector Statistics (Delhi Group). New Delhi, 2006.
Kantor, P. “Women’s Exclusion and Unfavorable Inclusion in Informal Employment in Lucknow, India: Barriers to Voice and Livelihood Security.†World Development 37, no. 1 (2009): 194-207.
Krakowski, M. “Determinants Of The Informal Economy: The Importance Of Regional Factors.†Hamburg Institute Of International Economics Discussion Paper 313, 2005.
Kucera, D., and R. Galli. “Informal Employment in Latin America: Movements over Business Cycles and the Effects of Worker Rights.†International Institute for Labour Studies Working Paper 145, 2003.
Loayza, N.V. December. “The Economics of the Informal Sector: A Simple Model and Some Empirical Evidence from Latin America.†Carnegie-Rochester Conference Series on Public Policy 45 (1996): 129-62.
Loureiro, Paulo Roberto Amorim, Ricardo Azevedo Araujo, and Nathalia Almeida de Souza. “An Evaluation of the Brazilian Informal Labor Market from 1995 to 2008.†Journal of Economic Studies 40, no. 1 (2013): 71-87.
Mara, I., and E. Narazani. “The Effects of Flat Tax on Inequality and Informal Employment: The Case of Albania.†Balkan Observatory Working Paper 94. Vienna Institute for International Economic Studies, 2011.
Marcelli, E.A., M. Pastor Jr., and P.M. Joassart. “Estimating the Effects of Informal Economic Activity: Evidence from Los Angeles County.†Journal of Economic Issues 33, no. 3 (1999): 579-607.
Masud, M. “Entrepreneurial Activity in the Informal Sector (IS).†PhD dissertation, East West University, 2009.
Merrick, T.W. “Employment and Earnings in the Informal Sector in Brazil: The case of Belo Horizonte.†The Journal of Developing Areas 10, no. 3 (1976): 337-54.
Mirus, R., and R.S. Smith. “Self-Employment, Tax Evasion, and the Underground Economy: Micro-Based Estimates for Canada.†International Tax Program Working Paper 1002, Harvard Law School, 1997.
Mohd Arshad, M.N., and M.A. Mohamed Haneef. “Third Sector Socio-Economic Models: How Awqaf Fits In?†Institutions and Economies 8, no. 2 (2016): 72–90.
Pietrobelli, C., R. Rabellotti, and M. Aquilina. “An Empirical Study of the Determinants of Self-Employment in Developing Countries.†Journal of International Development 16, no. 6 (2004): 803-20.
Portes, A., S. Blitzer, and J. Curtis. “The Urban Informal Sector in Uruguay: Its Internal Structure, Characteristics, and Effects.†World Development 14, no. 6 (1986): 727-41.
Portes, A., and R. Schauffler. “The Informal Economy in Latin America: Definition, Measurement, and Policies.†Comparative and International Development Program Working Paper 5, John Hopkins University, 1992.
Radulescu, I.G., C. Popescu, and M. Matei. The Dark Side of Global Economy. Recent Advance in Management, Marketing Finances: Proceedings of the 8th WSEAS International Conference on Management, Marketing and Finances (MMF '10). Penang, Malaysia: WSEAS Press (2010): 179-84.
Ridzuan, Razaman, and Salmiah Ponggot. “Informal Sector in Malaysia.†Department of Statistics, Malaysia. Powerpoint presentation, 10 June 2009.
Rodin, D.L., K. McNeill, N. Vite-León, and J. Heymann. “Determinants of Informal Employment Among Working Mothers in Mexico.†Community, Work & Family 15, no. 1 (2012): 85-99.
Salisu, M. “Incentive Structure, Civil Service Efficiency and the Hidden Economy in Nigeria.†United Nations University, World Institute for Development Economics Research (WIDER) Working Paper Series 86, 2001.
Schneider, F. “Size and Measurement of the Informal Economy in 110 Countries.†In Workshop of Australian National Tax Centre, Australia National University, Canberra, July 2002.
Schneider, F., A. Buehn, and C.E. Montenegro. “New Estimates for the Shadow Economies all over the World.†International Economic Journal 24, no. 4 (2010): 443-61.
Schneider, F., and D.H. Enste. “Shadow Economies: Size, Causes, and Consequences.†Journal of Economic Literature 38, no. 1 (2000): 77–114.
Schneider, F., and R. Klinglmair. “Shadow Economies around the World: What Do We Know?†IZA Discussion Paper 1043, March 2004.
Tansel, Aysit. “Wage Earners, Self-employment and Gender in the Informal Sector in Turkey.†Policy Research Report on Gender and Development Working Paper Series 24, 2000.
Torns, T., P. Carrasquer, S. Moreno, and V. Borrà s. “Career Paths in Spain: Gendered Division of Labour and Informal Employment. Revue Interventions Économiques Papers in Political Economy 47, 2013.
Wahba, J. “Informality in Egypt: A Stepping Stone or a Dead End?†Economic Research Forum (ERF) Working Paper 456, 2009.
Wedderburn, Chantal, Eric P. Chiang, and Rupert Rhodd. “The Informal Economy in Jamaica: Is it Feasible to Tax This Sector?†Journal of International Business and Cultural Studies 6 (2012): 1-13.
Williams, Colin C. “The Informal Economy and Poverty: Evidence and Policy Review.†Report prepared for Joseph Rowntree Foundation, York, 2014.
Williams, Colin C. “Cross-National Variations in the Scale of Informal Employment: An Exploratory Analysis of 41 less Developed Economies.†International Journal of Manpower 36, no. 2 (2015): 118-35.
World Bank. “Gender Differences in Employment and Why They Matter.†World Development Report 2012, 2012.
World Bank. “Workers in the Informal Economy.†2015. http://go.worldbank.org/1PVGLNWYC0
Xue, J., W. Gao, and L. Guo. “Informal Employment and Its Effect on the Income Distribution in Urban China.†China Economic Review, 31 (2014): 84-93.
Albrecht, J., L. Navarro, and S. Vroman. “The Effects of Labour Market Policies in an Economy with an Informal Sector.†The Economic Journal 119, no. 539 (2009): 1105-29.
Amin, M., and A. Islam. “Are Large Informal Firms More Productive Than The Small Informal Firms? Evidence from Firm-Level Surveys In Africa.†World Development 74 (2015): 374-85.
Amuedo-Dorantes, C. “Determinants and Poverty Implications of Informal Sector Work in Chile.†Economic Development and Cultural Change 52, no. 2 (2004): 347-68.
Angel-Urdinola, D.F., and K. Tanabe. “Micro-Determinants of Informal Employment in the Middle East and North Africa Region.†Social Protection and Labor Discussion Paper 1201, 2012.
Bagachwa, M.S.D. “The Informal Sector under Adjustment in Tanzania.†In Economic Research Bureau Workshop on Beyond SAPs in Tanzania: Successes, Failures and New Perspectives. Dar es Salaam, Tanzania, 2-4 August 1995.
Becker, Kristina Flodman. The Informal Sector. Stockholm: SIDA, Swedia, 2004.
Bernabè, S. Informal Employment in Countries in Transition: A Conceptual Framework. LSE STICERD Research Paper CASE056, 2002.
Binay, M. Optimal Informal Employment Ratio for Turkish Economy. Procedia Economics and Finance, 26 (2015): 598-602.
Blau, P.M., and W.R. Scott. Formal Organizations: A Comparative Approach. Palo Alto: Stanford University Press, 1962.
Charities Aid Foundation. World Giving Index 2013: A Global View of Giving Trends. 2013.
Chen, M.A. “Rethinking the Informal Economy: Linkages with the Formal Economy and the Formal Regulatory Environment.†DESA Working Paper 46 (2007): 1–12.
Chong, A.E., and M. Gradstein. “Inequality, Institutions, and Informality.†Inter-American Development Bank, Research Department Working Paper 516, 2004.
Dallago, B. The Irregular Economy: the ‘Underground’ Economy and the ‘Black’ Labour Market. London: Dartmouth Publishing Company, 1990.
Davies, R., and J. Thurlow. “Formal-Informal Economy Linkages and Unemployment in South Africa.†South African Journal of Economics 78, no. 4 (2010): 437-59.
de Soto, Hernando. The Other Path: The Invisible Revolution in the Third World. New York: I.B. Tauris, 1989.
Defourny, Jacques, and Victor Pestoff. “Images and Concepts of the Third Sector in Europe.†Working Papers Series 08/02. Liege, Belgium: EMES European Research Network, 2008.
Doğrul, H.G. “Determinants of Formal and Informal Sector Employment in the Urban Areas of Turkey.†International Journal of Social Sciences and Humanity Studies 4, no. 2 (2012): 217–31.
Edwards, B.K., and S.J. Flaim. “Measuring and Integrating the Shadow Economy: A Sector-Specific Approach.†Los Alamos National Laboratory, June 30, 2008).
Elveren, A.Y. “The Impact of the Informal Employment on the Social Security Deficits in Turkey.†World Journal of Applied Economics 1, no. 1 (2015): 3-19.
Feige, E.L. “Revised Estimates of the Underground Economy: Implications of US Currency Held Abroad.†Underground Economy; Global Evidence of Its Impact and Size (1997): 151-208.
Flórez, C.E. “The Function of the Urban Informal Sector in Employment: Evidence from Colombia 1984-2000.†Center for Economic Development Studies (CEDE) Working Paper 2002-04. Universidad De Los Andes, Colombia, 2002.
Gong, X., and A. van Soest. “Wage Differentials and Mobility in the Urban Labour Market: A Panel Data Analysis for Mexico.†Labour Economics 9, no. 4 (2002): 513-29.
Gouldner, A.W. Patterns of Industrial Bureaucracy. Glencoe, Illinois: Free Press, 1954.
Heintz, J., and D. Posel. “Revisiting Informal Employment and Segmentation in the South African Labour Market.†South African Journal of Economics 76, no. 1 (2008): 26-44.
Hishamh. “The Shadow Economy: Estimates For Malaysia.†Economics Malaysia, 2012.
http://econsmalaysia.blogspot.my/2012/05/shadow-economy-estimates-for-malaysia.html
Hussmanns, R. “Measuring the Informal Economy: From Employment in the Informal Sector to Informal Employment.†Working Paper 53, Policy Integration Department, Bureau of Statistics, International Labour Office, 2004.
Ihrig, J., and K.S. Moe. “Tax Policies and Informal Employment: The Asian Experience.†Asian Economic Journal 15, no. 4 (2001): 369-83.
International Labour Office (ILO). Statistical Update on Employment in the Informal Economy. Geneva: ILO Department of Statistics, 2011.
International Labour Office (ILO). “Transitioning from the Informal to the Formal Economy.†Report presented at the 103rd Session of the International Labour Conference. Geneva, 28 May-12 June, 2014.
International Labour Office (ILO). “The Dilemma of the Informal Sector: Report of the Director-General Part 1.†Report presented at the 78th International Labour Conference. Geneva, 5-25 June 1991.
Jie, S.W., H.H. Tat, A. Rasli, and L.T. Chye. Underground Economy: Definition and Causes. Business and Management Review 12 (2011): 14-24.
Kamaruddin, J.A., and M.N. Ali. “Measuring Contribution of the Informal Sector/Informal Employment to GDP in Malaysia: Development of Survey Instrument.†Expert Group on Informal Sector Statistics (Delhi Group). New Delhi, 2006.
Kantor, P. “Women’s Exclusion and Unfavorable Inclusion in Informal Employment in Lucknow, India: Barriers to Voice and Livelihood Security.†World Development 37, no. 1 (2009): 194-207.
Krakowski, M. “Determinants Of The Informal Economy: The Importance Of Regional Factors.†Hamburg Institute Of International Economics Discussion Paper 313, 2005.
Kucera, D., and R. Galli. “Informal Employment in Latin America: Movements over Business Cycles and the Effects of Worker Rights.†International Institute for Labour Studies Working Paper 145, 2003.
Loayza, N.V. December. “The Economics of the Informal Sector: A Simple Model and Some Empirical Evidence from Latin America.†Carnegie-Rochester Conference Series on Public Policy 45 (1996): 129-62.
Loureiro, Paulo Roberto Amorim, Ricardo Azevedo Araujo, and Nathalia Almeida de Souza. “An Evaluation of the Brazilian Informal Labor Market from 1995 to 2008.†Journal of Economic Studies 40, no. 1 (2013): 71-87.
Mara, I., and E. Narazani. “The Effects of Flat Tax on Inequality and Informal Employment: The Case of Albania.†Balkan Observatory Working Paper 94. Vienna Institute for International Economic Studies, 2011.
Marcelli, E.A., M. Pastor Jr., and P.M. Joassart. “Estimating the Effects of Informal Economic Activity: Evidence from Los Angeles County.†Journal of Economic Issues 33, no. 3 (1999): 579-607.
Masud, M. “Entrepreneurial Activity in the Informal Sector (IS).†PhD dissertation, East West University, 2009.
Merrick, T.W. “Employment and Earnings in the Informal Sector in Brazil: The case of Belo Horizonte.†The Journal of Developing Areas 10, no. 3 (1976): 337-54.
Mirus, R., and R.S. Smith. “Self-Employment, Tax Evasion, and the Underground Economy: Micro-Based Estimates for Canada.†International Tax Program Working Paper 1002, Harvard Law School, 1997.
Mohd Arshad, M.N., and M.A. Mohamed Haneef. “Third Sector Socio-Economic Models: How Awqaf Fits In?†Institutions and Economies 8, no. 2 (2016): 72–90.
Pietrobelli, C., R. Rabellotti, and M. Aquilina. “An Empirical Study of the Determinants of Self-Employment in Developing Countries.†Journal of International Development 16, no. 6 (2004): 803-20.
Portes, A., S. Blitzer, and J. Curtis. “The Urban Informal Sector in Uruguay: Its Internal Structure, Characteristics, and Effects.†World Development 14, no. 6 (1986): 727-41.
Portes, A., and R. Schauffler. “The Informal Economy in Latin America: Definition, Measurement, and Policies.†Comparative and International Development Program Working Paper 5, John Hopkins University, 1992.
Radulescu, I.G., C. Popescu, and M. Matei. The Dark Side of Global Economy. Recent Advance in Management, Marketing Finances: Proceedings of the 8th WSEAS International Conference on Management, Marketing and Finances (MMF '10). Penang, Malaysia: WSEAS Press (2010): 179-84.
Ridzuan, Razaman, and Salmiah Ponggot. “Informal Sector in Malaysia.†Department of Statistics, Malaysia. Powerpoint presentation, 10 June 2009.
Rodin, D.L., K. McNeill, N. Vite-León, and J. Heymann. “Determinants of Informal Employment Among Working Mothers in Mexico.†Community, Work & Family 15, no. 1 (2012): 85-99.
Salisu, M. “Incentive Structure, Civil Service Efficiency and the Hidden Economy in Nigeria.†United Nations University, World Institute for Development Economics Research (WIDER) Working Paper Series 86, 2001.
Schneider, F. “Size and Measurement of the Informal Economy in 110 Countries.†In Workshop of Australian National Tax Centre, Australia National University, Canberra, July 2002.
Schneider, F., A. Buehn, and C.E. Montenegro. “New Estimates for the Shadow Economies all over the World.†International Economic Journal 24, no. 4 (2010): 443-61.
Schneider, F., and D.H. Enste. “Shadow Economies: Size, Causes, and Consequences.†Journal of Economic Literature 38, no. 1 (2000): 77–114.
Schneider, F., and R. Klinglmair. “Shadow Economies around the World: What Do We Know?†IZA Discussion Paper 1043, March 2004.
Tansel, Aysit. “Wage Earners, Self-employment and Gender in the Informal Sector in Turkey.†Policy Research Report on Gender and Development Working Paper Series 24, 2000.
Torns, T., P. Carrasquer, S. Moreno, and V. Borrà s. “Career Paths in Spain: Gendered Division of Labour and Informal Employment. Revue Interventions Économiques Papers in Political Economy 47, 2013.
Wahba, J. “Informality in Egypt: A Stepping Stone or a Dead End?†Economic Research Forum (ERF) Working Paper 456, 2009.
Wedderburn, Chantal, Eric P. Chiang, and Rupert Rhodd. “The Informal Economy in Jamaica: Is it Feasible to Tax This Sector?†Journal of International Business and Cultural Studies 6 (2012): 1-13.
Williams, Colin C. “The Informal Economy and Poverty: Evidence and Policy Review.†Report prepared for Joseph Rowntree Foundation, York, 2014.
Williams, Colin C. “Cross-National Variations in the Scale of Informal Employment: An Exploratory Analysis of 41 less Developed Economies.†International Journal of Manpower 36, no. 2 (2015): 118-35.
World Bank. “Gender Differences in Employment and Why They Matter.†World Development Report 2012, 2012.
World Bank. “Workers in the Informal Economy.†2015. http://go.worldbank.org/1PVGLNWYC0
Xue, J., W. Gao, and L. Guo. “Informal Employment and Its Effect on the Income Distribution in Urban China.†China Economic Review, 31 (2014): 84-93.
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Published
2017-08-30
How to Cite
Abdul Malek, N., & Mohd Arshad, M. N. (2017). The Informal Economy: A Neglected Area in Islamic Economics. International Journal of Economics, Management and Accounting, 25(2), 285–314. https://doi.org/10.31436/ijema.v25i2.452
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