Methods for measuring the size of the informal economy

Abstract

This chapter reviews the different measurement methods used for estimating the size of the informal economy. Two broad types of measurement method are differentiated: indirect and direct measurement methods. On the one hand, indirect measurement methods, or what might be called -proxy indicatorÓ methods, are of four types, differentiated by the indicators they use to measure the magnitude of the informal economy, namely non-monetary indicator methods, monetary proxy indicator methods, income/expenditure discrepancy methods and multiple indicator methods, of which the most common is the MIMIC method. On the other hand, direct measurement methods, such as surveys, directly collect data on participation in the informal economy. The advantage of direct surveys is that they enable not only the prevalence of the informal economy to be analysed but also what kind of informal work they do, who engages in informal work and why they do so, to enable the informal economy to be tackled.