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close this bookVolunteer Participation in Working with the Urban Poor (UNDP - UNV, 64 p.)
close this folderII. Insights derived from community-based programmes
close this folderUrban informal sector
View the document(introduction...)
View the documentMicro-enterprise promotion
View the documentWorking conditions in the informal sector
View the documentThe ILO experience


One of the main priorities of low-income groups in urban areas is the need for more employment opportunities and income-earning support. The informal sector is where most low-income urban communities find their livelihood, realise their economic potential and develop their skills. Yet because the rigours of the market and other factors make this a volatile and vulnerable arena, it is often difficult to promote community-based programmes in the informal sector.

The "informal sector" is a term loosely used to describe income-generating activities which are not guided by formal contractual relationships, institutions, standards and guidelines, as in the "formal sector." Roughly half the total urban labour force in most developing countries is employed in the informal sector; in several Latin American countries, informal sector production may generate as much as 70% of national GDP. Two major factors account for its continued growth: rapid increase of the urban population and poor macro-economic performance, combined with structural adjustment measures that lead to retrenchment of public sector investments and payrolls.

The main characteristics of the various contractual relationships found in the informal sector -- self-employment, disguised wage-work, home-based outwork, apprenticeship, and unpaid family labour -- are low and stagnant levels of remuneration; insecurity of employment and instability of income (vulnerability on the labour market); excessively long working hours; and abysmal and unhealthy working conditions, including lack of work-space, especially within extremely low-income settlements. Trade and services tend to predominate over construction, manufacturing or administration. Other traits of the informal sector include the existence of exploitative relationships with the formal sector in terms of credit, raw materials and equipment, and markets; and work tends to take place within a hostile policy environment that leads to frequent harassment. In addition, workers are usually young, and a large proportion of them are women, who have almost no access to avenues of education or skill-development.

The urban informal sector is not entirely composed of groups from low-income urban communities, even though they do account for a majority of the individuals involved in it. Studies indicate that there are three broad categories of activity in the informal sector. The largest category consists of small-scale retail trades and services such as street vending and shoe-shining which operating at a survival level with minimal capital. A second large category consists of craft and trade activities which produce cheap goods and services, primarily for the local market. Finally, there is a much smaller category of capital-intensive units which exist on the fringe of the formal sector. In many cases, the output from these activities successfully competes with goods produced in the formal sector.

In developing programme approaches for support to the informal sector, organisations have been divided in terms of the activities and individuals which they have targeted as their primary clients. In part, this has been a function of the kinds of contributions (e.g. credit) the organisations have been willing to make, and the time-frame within which they wished the communities to become economically self-reliant. As OXFAM concluded after a review of income-generating activities in urban areas, organisations have demonstrated some ideological thrust in their support work, which may prejudice the economic viability of the groups being helped. In other words, some organisations have favoured an approach based on a liberal economic paradigm which espouses fair competition, free markets and the principle of comparative advantage. The main thrust of this approach seeks to build the capacity of a viable business community for capitalist development and enterprise promotion -- a "business-oriented" approach -- rather than focusing on principles of community, cooperation and poverty alleviation: a "poverty-oriented" approach.