The Informal Sector: A Review and Agenda for Management Research

Despite its connotations of non-compliance, illegality, social exploitation and marginality, the informal sector is a substantial contributor to economic life in developing countries and, increasingly, in more technologically advanced activities. Its prevalence in developed economies has also become more widely recognized. In light of its significance, this paper reviews research on the informal sector from a management and organization scholarship perspective, rather than from an entrepreneurship view, as has been the focus until now. It sets out the atypical management practices that are inherent in the sector, explores the under-researched relationship between formal and informal firms, and highlights definitional, conceptual and other limitations in extant research. As a step in resolving these issues, the authors present a conceptual model of formality and informality in a three-dimensional framework that highlights an organizational infrastructure dimension, a view of firms operating along a continuum, and a multi-level analytical context. Building on this, the authors detail opportunities for enhanced appreciation of in situ management and organizational practices in the informal sector and outline tools for pursuing a management and organization scholarship agenda. Overall, the authors argue that management scholarship has great potential to improve understanding of the informal sector, and that the informal sector provides opportunities to advance management theory, research and practice.