Economic & Social Affairs DESA Working Paper No. 46 ST/ESA/2007/DWP/46 July 2007 Rethinking the Informal Economy: Linkages with the Formal Economy and the Formal Regulatory Environment Martha Alter Chen Abstract Th is paper explores the relationship of the informal economy to the formal economy and the formal regulatory environment. It begins with a discussion of the concept of the informal economy and its size, composition, and segmentation. It then discusses the linkages between the informal economy and the formal economy and the formal regulatory environment. Th e conclusion suggests why and how more equitable linkages between the informal economy and the formal economy should be promoted through an appropriate inclusive policy and regulatory environment. JEL Classifi cation: J01, J08, K23, K31, L22, L25, L26, O17 Key words: informal sector, informal economy, informal enterprises, informal workers, formal economy, formal regulatory environment, linkages, formalization Martha Alter Chen teaches at the Kennedy School of Government, Harvard University, and coordinates the global research-policy network Women in Informal Employment: Globalizing and Organizing (WIEGO). An experienced development scholar and practitioner, she has a PhD in South Asia Regional Studies from the University of Pennsylvania. She lectures and writes widely on gender and poverty, with a focus on issues of employment and livelihoods, and is the author of many books and articles. E-mail:
[email protected]. Comments should be addressed by email to the author. Contents Th e informal economy .................................................................................................................... 1 New Term and Expanded Defi nition .................................................................................. 1 Key Features of the Informal Economy .............................................................................. 2 Women and Men in the Informal Economy ......................................................................