Economists have stressed the negative aspects of informal trade for decades. Informal businesses often don't pay taxes, and they routinely lack the capital and expertise to be as productive as big enterprises, leading to less innovation and lower standards of living. Since informal workers lack health benefits and other safeguards, they have to save more for emergencies, resulting in less casual spending that further drags down growth. Having a big underground economy "is not something to be cheerful about," says Nancy Birdsall, an economist at the Center for Global Development, a Washington think tank. "When everybody is selling apples to each other, you're not creating new wealth -- it's not a sign that things are OK."
The frightening scale of the current recession is forcing some analysts to reconsider. As many as 52 million people could lose their jobs from the economic crisis world-wide, says the International Labour Organization, an agency of the United Nations. Without the informal sector, many of them will have nowhere to go.
Informal jobs "will absorb a lot of people and offer them a source of income" over the next year, says W.F. Maloney, an economist at the World Bank in Washington. Indeed, the jobs are "one reason that the situation in desperately poor countries isn't as bad as you'd think," says Simon Johnson, a former chief economist at the International Monetary Fund.
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