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Forms part of the market economy in that it produces (legal) goods and services for sale or other forms of remuneration. It covers informal employment both within and outside informal (small, unregistered or unincorporated) entities. Informal entrepreneurs and workers share one important characteristic: they are not recognized or protected under existing legal and regulatory frameworks. The informal economy excludes the criminal economy and the reproductive or care economy.

All activities that are, in law or practice, not covered or not sufficiently covered by formal arrangements, such as labour law protection, formal wages and benefits, and paying taxes. This term also refers to the nature of the production unit, such as an informal enterprise or household, where economic activity is taking place without formal regulation as a business.

The term “informal economy” refers to all economic activities by workers and economic units that are – in law or in practice – not covered or insufficiently covered by formal arrangements. Their activities are not included in the law, which means that they are operating outside the formal reach of the law; or they are not covered in practice, which means that – although they are operating within the formal reach of the law, the law is not applied or not enforced; or the law discourages compliance because it is inappropriate, burdensome, or imposes excessive costs.