The informal sector represents a significant part of the economies of most countries in the world, especially developing nations. Informal economy is an economic activity that usually operate on a small scale that falls outside the regulated economy and tax system, such as street vending or unregistered taxi drivers. Despite the global arguments and criticism on measuring informality, International Monetary Fund (IMF, 2021) stated that in low-income and middle-income countries, the informal sector is estimated to contribute 35 per cent of GDP on average, compared to an average of 15 per cent in advanced economies countries.
The Department of Statistics Malaysia (DOSM) stated that according to International Labour Organisation (ILO), two billion people or 60 per cent of the globally employed were in informal employment in 2019 (ILO,2022). In accordance to that, Employment in Informal Sector and Informal Employment Survey Report, Department of Statistics Malaysia (DOSM) reported that there are 1.30 million of people are employed in the informal sector as compared to 1.26 million in 2019. This rising trend was also mirrored by the employment in formal sector, which recorded a rise of 4.6 per cent to 10.6 million in 2021 as compared to 9.70 million in 2019.
With the rapid growth of digitalisation and the pandemic’s ripple effects, a large number of people who lost their jobs are forced to transition into self-employed during the pandemic, whether by choice or necessities. Many of them are compelled to shift into the informal sector as a social safety net or an alternative option to earn money and support their families.
The absence of entry barriers has influenced these people into the transition of the informal economy. Correspondingly, Employment in Informal Sector and Informal Employment, DOSM (2022) reported that, employment in informal sector made up of 9.6 per cent of total employment in the non-agricultural sector, with own account workers made up 71.9 per cent of the informal workforce.
Looking into the current situation, the rise of digitalisation and the unexpected impact of public health crisis have aided the growth of the gig economy and change the way of work, this change has brought on to the rapid emergence of online labour platforms which fundamentally transformed the work relationships by crowdsourcing jobs to independent contractors or so-called gig workers that are ‘hired’ on-demand (Boons et al., 2015). Furthermore, this choice of work is currently fairly popular especially to the younger generations. Gig workers are known as the individuals whose services are contracted through platforms and typically provided offline, such as in ride-hailing, food delivery, home maintenance, and caregiving. This arrangement of gig work gives the provider flexibility in terms of work schedules and autonomy, a benefit that not all firms frequently promote (Vallas, S., & Schor, J. B., 2020).
Flexibility in time management and working hours while continue to earn their earning are one of the reasons people tempted to the transition into gig work. According to The sun daily written by Shivani, Emir Research pointed out that about 26 per cent of the Malaysian labour force, equivalent to four million people, had already been full-time gig workers as of 2019 which is consistent with estimation from the Department of Statistics Malaysia (DOSM) that there will be approximately four million freelance workers in the country by 2020.
The surge of digitalisation during the pandemic has observed a transformation in the way of work, the flexibility of working from home through the internet and accessibility to online gig platform is mainly focused on city-level which are linked to urban informality.
With an addition to traditional informal sector, the majority of workforce in informal sector in Malaysia is capitalised in urban area and comprised of 73.7 per cent of total employment in the informal sector.
This number is expected to increase even more considering the disrupted labour markets due to impact of public health crisisthroughout the countries. Therefore, this article will assess the structure and distribution of urban informal sector in Malaysia based on pre-pandemic and post pandemic level.
Definition of Informal Sector Keith Hart (1971, 1973), a social anthropologist, was the first person to use the term “informal sector” in academic context (Gerxhani, K., 2004). In September 1971, he introduced it during a presentation on “Informal income opportunities and urban employment in Ghana” at the Institute of Development Studies (IDS) at a conference co-organised by Rita Cruise O’Brien and Richard Jolly on urban employment in Africa, months before the International Labour Organisation (ILO) employment mission to Kenya released its report “Employment Incomes and Equality.” (Jolly R., 2006).
He distinguished between formal and informal (legitimate and illegitimate) income opportunities based on whether the activity involved wage or self-employment (Hart, K., 1973). However, according to Swaminathan, M. (1991), Hart’s definition of the informal sector was limited to small self-employed individuals.
The term informal sector came in a broader sense in the academic literature only after the visit of an International Labour Organisation (ILO) mission to Kenya in 1972 (Naik, A. K., 2009). ILO (2000) stated that the Resolution Concerning Statistics of Employment in the Informal Sector was adopted by the
Fifteenth International Conference of Labour Statisticians (ICLS) in 1993, and it defined the informal sector as a group of household enterprises or unincorporated enterprises owned by households, including informal own-account enterprises and informal employers’ enterprises. Subsequently, the concept of employment in the informal sector was defined as any job in an informal sector enterprise, or any person who worked in at least one informal sector enterprise during a given reference period, regardless of their employment status or whether it was their primary or secondary job.
Global situation on informal sector
The informal economy is a global phenomenon, but it varies greatly within and across countries. It accounts for 35 per cent of GDP in low- and middle-income countries, versus 15 per cent in advanced economies (IMF, 2021). Employment in informal sector accounts for half to three-quarters of non-agricultural employment in developing countries: specifically, 48 per cent of non-agricultural employment in North Africa, 51 per cent in Latin America, 65 per cent in Asia, and 72 per cent in Sub-Saharan Africa (Singh, T., & Gupta, A., 2011).
