The informal economy in Asia reflects the strong entrepreneurial potential of the region.

Argue whether the government should increase regulation for this sector?
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INTRODUCTION
This paper will show that the government should increase regulation for the informal sector.
A number of reasons will be given to support this. Firstly, through increasing regulation, the
government can control the informal economy, as well as the flow of money. Secondly, the
government is responsible for ensuring the living standards of informal laborers, including
their pay, working conditions, and employment opportunities. Thirdly, combining strategic
legislation with the proper technology may improve working conditions without impeding the
entrepreneurial potential of informal employees. A counterargument is that a reason for the
government to not put regulations on the informal sector is its necessity for poor people.
However, the response is the informal economy should be controlled because of its insecurity
and inequity to informal employment.

DEFINITIONS & BACKGROUND

One of the definitions of the informal economy that is most commonly used is that it is
a process of revenue production distinguished by one key feature: it is uncontrolled by the
institutions of society, in a legal and social environment in which similar activities are
regulated.(Portes & Castells 1989). Statistically, more than 60% of total employment
worldwide is informal(Bonnet, Vanek, & Chen 2019). And over 61% of the world's
workforce, or two billion people, depend on the informal economy for their livelihood, most
of them in emerging and developing countries (International Labour Organization [ILO],
2018). Particularly in Vietnam, around 36 million people are currently employed in informal
sectors. (O’Higgins, N., & Viegelahn 2021).

BODY
First and foremost, through strengthening rules, the government can regulate the informal
sector and the flow of money (Prado, M.,2011). Instances where the state loses out on
revenue and sales tax are prevented by regulations. For instance, making cash payments or
hiding income are easy strategies to lower your tax obligation. One can earn more money by
breaking the rules. Friedrich Schneider of Johannes Kepler University in Linz, Austria,
conducted research that projected the European Union's tax loss from informality in 2011 to
be around €450 billion, or 4% of GDP. The region's debt-ridden governments could use this
money (The Economist article, 2016). Therefore, by tightening restrictions, the government's
revenue and financial budget both increase when the informal sector is lucrative.
Furthermore, while regulations may now help to limit political influence, administrators
seldom ever suffer the penalties when the informal loses money.

Secondly, the government has responsibility to ensure informal workers living standards such
as income, working conditions, job opportunities (Hussain, Rasel, 2019). In order to do this,
the government must let them register for their business and formalize their activities. For
instance, people engaged in Street Vending in Dhaka city face problems with confiscation,
harassment, eviction, weather difficulties, housing and services. The first and foremost reason
is that they are running the business without governmental agreement. (Renooy, PH, 1990).
The problems of harassment and eviction reduce their little earning and induce their
sufferings. Their demand to the government is that the government establish fixed places for
them, reduce the problem of harassment, ensure capital support for them, and provide
cooperation to stabilize their business. Proper urban governance and planning in this regard
can ensure the solid and sustainable livelihood for this greater segment of the
population.(Losby et al., 2002)

Thirdly, combining strategic legislation with the proper technology may improve working
conditions without impeding the entrepreneurial potential of informal employees (Brown, D.,
& McGranahan, G.,2016). For instance, according to Ms. Naritomi, cross-referencing data
from various sources is a clever strategy to get individuals to pay taxes. That is also getting
simpler. It used to take an age to match up a company's pay stubs with its employees' tax
returns; nowadays, a computer can do it rapidly. In Italy, 2 meters "ghost buildings" that the
government was unaware of and hence not collecting property taxes on were discovered by
comparing aerial photographs with land-registry data. It would be beneficial for government
finances, growth, and poverty reduction to combine technological advancements, structural
reform, and cunning strategies to reduce informality. Although no economy could ever
completely eradicate informality, millions of people's lives would be improved by bringing
some unregulated activities into the open (The Economist article, 2016).
An argument against the topic is that a reason for the government to not put regulations on the
informal sector is its necessity for poor people. (Norris & Institute, 2021). There is no
alternative but to labor in the informal sector for those who lack the education or skills
necessary to be employed in the formal economy. According to the World Bank, in
Bangladesh, India, and Pakistan, the poorest third of the population are relying on the
informal economy to survive. They argue that by not increasing regulation for the informal
sector, poor people could have jobs to make a living.

However, a response to this is that the informal economy should be controlled to protect poor
people who are considered as informal employees, and their social rights are limited. The
term "informal employees" refers to everyone who is employed but who by law or in fact is
not subject to national labor regulations, income taxation, social protection or entitlement to
certain employment benefits. (Lee & Di Ruggiero, 2022). Particularly, informal companies
can offer far lower compensation than formal companies and have little, if any, employee
benefits. Nearly 70% of employees are unpaid in the global informal sector, which includes
self-employment, family work, and apprenticeships (Omar E, 2006). Such people are
compelled to accept that amount due to their social status as members of the lowest class.
Informal workers are not protected from discrimination or uneven market power, lack the
necessary market knowledge or skills, and have insufficient risk insurance (unemployment,
illness, disability, old age)(Chen, Jhabvala, & Lund, 2002). Therefore, by increasing
regulations, the government could help informal employment receive fundamental benefits
and protection from laws.

CONCLUSION
This paper has shown that the government should increase regulation for the informal sector.
The reasons given were: First, the government can manage both the informal economy and
the flow of money by expanding regulation. Second, it is the duty of the government to
guarantee the living standards, including wages, working conditions, and employment
prospects, of undocumented workers. Third, it may be possible to enhance working
conditions while preserving the entrepreneurial potential of informal workers by combining
strategic legislation with the appropriate technology. A counterargument is that the
government should not regulate the informal sector because it is essential for the poor, the
response shows that ultimately the informal sector should be subject to more regulation from
the government.
 Reference & Appendix

Bonnet, Florence, Joann Vanek and Martha Chen. (2019) Women and Men in the Informal
Economy – A Statistical Brief. Manchester, UK: WIEGO.

Brown, D., & McGranahan, G. (2016). The urban informal economy, local inclusion and
achieving a global green transformation. Habitat international

Bussolo, M., Sharma, S., & Timmer, H. (2020, December 7). Covid-19 has worsened the woes of
South Asia's informal sector. Retrieved November 23, 2022, from
https://blogs.worldbank.org/endpovertyinsouthasia/covid-19-has-worsened-woes-south-asia
s-informal-sector

Chen, M. A., Jhabvala, R., & Lund, F. (2002). Supporting workers in the informal economy: A
policy framework. Geneva: International Labour Office.)

Five things to know about the informal economy. (2021). Retrieved from IMF News
https://www.imf.org/en/News/Articles/2021/07/28/na-072821-five-things-to-know-about-the
-informal-economy

International Labour Organization, (2018, May 2) Informal economy: More than 68 per cent of
the employed population in Asia-Pacific are in the informal economy

Lee, J., & Di Ruggiero, E. (2022). How does informal employment affect health and health
equity? Emerging gaps in research from a scoping review and modified e-Delphi survey.
International journal for equity in health, 21(1), 1-12.

Losby, J. L., Else, J. F., Kingslow, M. E., Edgcomb, E. L., Malm, E. T., & Kao, V. (2002).
Informal economy literature review. ISED Consulting and Research, 1, 55.

Norris, J., & Institute, H. (2021, October 9). ‘Informal’ remittances help developing economies
too. ‘Informal’ Remittances Help Developing Economies Too.

O’Higgins, N., & Viegelahn, C. (2021). Informal employment in Viet Nam: trends and
determinants.

Omar E. Garcia-Bolivar, "Informal Economy: Is It a Problem, a Solution or Both? The

Perspective of the Informal Business" (March 6, 2006)
Portes, A., & Castells, M. (1989). The Informal Economy: Studies in advanced and less developed
countries (Vol. Edited Volume, pp. 12-13). Baltimore: The Johns Hopkins University Press.

Prado, M. (2011). Government policy in the formal and informal sectors. European Economic
Review, 55(8), 1120-1136.

Renooy, PH. (1990), “The informal economy: Meaning, measurement and social significance”,
Netherlands Geographical Studies, Amsterdam.

The Economist. (2016, October 14). How governments can nudge informal businesses to leave the
grey economy. Retrieved from
https://www.economist.com/international/2016/10/14/how-governments-can-nudge-informa
l-businesses-to-leave-the-grey-economy