Dynamics of Employment in the Urban Informal Sector in Bangladesh

Abstract

The informal economy refers to activities and income that are partially or fully outside government regulation, taxation, and observation. The main attraction of the undeclared economy is financial. This type of activity allows employers, paid employees, and the self-employed to increase their take-home earnings or reduce their costs by evading taxation and social contributions. On one hand, informal employment can provide a cushion for workers who cannot find a job in the formal sector. But on the other hand, it entails a loss in budget revenues by reducing taxes and social security contributions paid, and therefore the availability of funds to improve infrastructure and other public goods and services. It invariably leads to a high tax burden on registered labor. Like many developing countries, the urban formal sector in Bangladesh is not able to provide enough job opportunities for its growing labor force. The growing labor forces can easily find themselves in the urban informal sector for their livelihoods. Therefore, urban formal sector has gained much attention to the policymakers for its important significance in the economy. In this context, it is very important to understand the dynamics and different issues of this urban informal sector, so that better policies can be designed to address the requirements of the workers engaged in these sectors. Against this background, this study provides a detailed overview of the urban informal sector in Bangladesh and explores the factors that affect the decision of the individuals to enter into the urban informal sector.