FORMAL ECONOMY

In my previous post on INFORMAL ECONOMY, the term “formal economy” was often mentioned. As one would guess, it is more or less the opposite of informal economy. This is where registered workers earn a fixed wage and work regular hours. This is a more organized employment system as compared to informal economy. Working environment conditions are decent and more acceptable. Unlike informal economy, the government monitors tax payments and influences economic activity which is included in the country’s GNP. Examples of occupations belonging to the formal sector are government services, defense, management organizations, banks etc.

(1) This image shows 2 photos taken at Port of Spain. Photo a was taken at Frederick Street and b was taken at Park Street.

The angle at which 1a is taken is important as it shows the length of Frederick Street with many different stores and shops along the buildings. Compared to the informal businesses in the previous post, these appear to be much more organized and spacious. 

Photo 1b depicts three different banks all in one area – Republic Bank and Royal Bank of Canada (RBC) at the left, First Citizens at the right. Banks play an important role in the economy of a country as it provides specialized financial services which help to make the overall economy more efficient.

(2) Persad’s Grocery in Princes Town

Photo 2 shows a grocery in Princes Town. This is typical of most urban areas so that residents and commuters have easy access to fresh foods and items. This photo was taken to show shoppers with their grocery bags and shopping carts in hand. This form of food sale is quite different when compared to that of the informal sector. In this formal type of setting, foods are expected to be clean, fresh and safe. Meats, fish and dairy would be properly refrigerated and other food items like fresh produce would be stored in a cool, clean environment.

The World Bank states that because workers in the informal sector do not pay taxes or contribute to social security payments, there is a net loss of budget revenues. This negatively impacts the country as a burden is placed on the registered workers in the formal sector to pay for infrastructure and public goods and services. As such, persons are encouraged to move from the informal to the formal economy.

The following video explains some initiatives if the ILO to go about achieving this:  

For further details of these initiatives, feel free to view the ILO’s official report on “Transitioning from the Informal to the Formal Economy”:

http://www.ilo.org/ilc/ILCSessions/103/reports/reports-to-the-conference/WCMS_218128/lang--en/index.htm

References:

The World Bank. "Workers in The Informal Economy." http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTSOCIALPROTECTION/EXTLM/0,,contentMDK:20224904~menuPK:584866~pagePK:148956~piPK:216618~theSitePK:390615,00.html (accessed April 6, 2014).