Informal Economies

My last post was about the high costs of work and how we often fail to fully consider the high costs of work for people in the deepest poverty when we criticize them for relying on government aid for survival. This post looks at what people living in poverty do to make money when they don’t engage in formal economies or work traditional jobs. For the individuals chronicled in Kathryn Edin and H. Luke Shaefer’s book $2.00 A Day, informal work is how most of them make any money, as the costs of formal employment can make working in the formal sector prohibitive.
“The more employment in the formal labor market proves perilous – with low pay, too few hours, and crazy schedules – the more untenable it is for a parent trying to raise kids. And the weaker the government safety net, the more the informal work described here will proliferate.”
Informal work can be dangerous, hazardous, and unpredictable, but often it is one of the only options available to people in poverty who can’t get a foothold in more traditional labor markets. If you can’t afford to live near a job, if that job changes its schedules unpredictably, and if you are generally taken advantage of in a low-wage work situation that doesn’t ensure you won’t go hungry or without water or power, then why risk putting in the effort to find and maintain a job in the formal economy? Why not fall back on what little social support and government aid there is and hope for odd jobs in the informal economy instead? At least those jobs will provide some measure of autonomy, can be done close to home or with reasonable transportation provided, and at least they will pay quick cash.
This is the calculation many living in poverty face each day, but there are long term costs to relying on an informal economy. The authors write, “the replacement of a formal economy with an informal one – unregulated and unpoliced – may have a self-perpetuating effect of pushing the $2-a-day poor further and further out of the American mainstream.” Informal jobs are not enough to help people escape poverty, build skills or a resume for the future, or find stable and solid footing. Informal economies meet the immediate needs of the day sometimes better than formal jobs, but they don’t provide the stability and support necessary to plan for a future and build a road toward success.
However, as my first few paragraphs show, we cannot simply blame the individual for opting out of the formal economy for informal jobs that don’t provide long-term benefits. The formal economy can also be unpredictable, can deliberately schedule too few hours or change hours last minute, and also may not provide many long-term benefits to help someone live with any stability. These are large structural issues with the way our economic system has developed. Forces beyond an individual’s work ethic and self-control are shaping the environment, the cost/benefit calculations, and the opportunities for both formal and informal work. All of this creates a self-perpetuating cycle between informal economies and formal work for the poorest people in our country. Removing the little support that exists for the poor and criticizing them for not having a formal job and for engaging in informal economies will never be enough to improve the situation for more than a minimal percent of those living in deep poverty.

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