Q. Critically analyze the sociological significance of informal sector in the economy of developing societies.

Model Answer:

The informal sector, coined by anthropologist Keith Hart, encompasses unregulated, untaxed economic activities operating outside state protection. Comprising 60-90% of employment in developing countries, it presents a profound sociological paradox—simultaneously serving as a survival mechanism and perpetuating structural inequalities.

The Informal Sector as ‘Safety Valve’

From a functionalist perspective, the informal economy maintains social stability in developing nations marked by high unemployment and rural-urban migration.

Key Functions:
– Employment absorption: Accommodates surplus labour that formal sectors cannot employ, preventing mass unemployment and potential social unrest. Street vendors, rickshaw pullers, and home-based workers in Indian cities exemplify this absorption mechanism.
– Economic buffer: During crises, provides alternative livelihoods for those displaced from formal employment, demonstrating remarkable resilience
– Social integration: Operates through kinship, caste, and community networks, offering migrants belonging and support in anonymous urban environments
– Entrepreneurial dynamism: Fosters grassroots innovation and small-scale entrepreneurship despite resource constraints

Site of Precarity and Structural Exploitation

Critical analysis reveals how the informal sector reinforces social hierarchies and exploitation.

Stratification and Inequality:
The sector is deeply stratified—women, lower castes, and minorities concentrate in the most precarious jobs like domestic work, waste-picking, or construction labour. This reflects and reinforces existing inequalities, limiting life chances (as Weber would argue).

Structural Integration:
Jan Breman challenges the formal-informal dualism, arguing the informal sector is structurally integrated with and subsidizes the formal economy through subcontracting chains. It provides cheap labour and services, enabling formal sector cost reduction—functioning as Marx’s “reserve army of labour.”

Mobility Trap:
Without contracts, social security, or legal protection, workers remain trapped in poverty cycles with minimal upward mobility opportunities. The absence of skill development and career progression perpetuates intergenerational poverty.

Conclusion: The informal sector embodies a fundamental paradox—providing essential livelihoods while institutionalizing precarity. This ambivalence makes it both indispensable and problematic for developing societies.