Deconstructing Informality: A Response to Vulnerability or an Optimal Choice?

Conventionally, the informal sector is regarded as a hub for the poor who need work but could not find formal employment. It is a residual sector, a refugee for the vulnerable. More recently, however, it seems to be attracting the skilled, people with business assets and even risk-takers. For such people, the informal sector may be their first preference: their optimal choice, rather than a second best to formal employment. In China, the trend of informal employment (IE) therefore has been to increase rather than enter an expected decline. Among policymakers, there are now both positive and negative views of this trend. Some in Shanghai have openly welcomed the emerging of IE; its mayor published an article regarding the IE as the “cradle of a new type of economic organizations” (Chen, 1999). Conversely, others continue to advocate reducing the size of informal sector. The International Labor Organization (ILO), for example, still expresses the view that informality is the trap for the vulnerable….