The Informal Sector: A Review and Agenda for Management Research

• DOI: http://doi.org/10.1111/ijmr.12131
• Author: William Phanuel Kofi Darbi,C. Michael Hall,Paul Knott
• Date: 01 April 2018
• Published date: 01 April 2018

International Journal of Management Reviews, Vol. 20, 301–324 (2018)

DOI: 10.1111/ijmr.12131

The Informal Sector: A Review and

Agenda for Management Research

William Phanuel Kofi Darbi,1,2 C. Michael Hall1,3,4,5 and Paul Knott1

1Department of Management, Marketing and Entrepreneurship, University of Canterbury, Private Bag 4800,

Christchurch 8140, New Zealand, 2Ghana Institute of Management and Public Administration Business School, Accra,

Ghana, 3Department of Geography, University of Oulu, Finland, 4Linnaeus University School of Business

and Economics, Kalmar, Sweden, and 5School of Tourism & Hospitality, Faculty of Management, University

of Johannesburg, South Africa

Corresponding author email: wdarbi@gimpa.edu.gh

Despite its connotations of non-compliance, illegality, social exploitationand marginal-

ity, the informalsector is a substantial contributor to economic life in developing coun-

tries and, increasingly, in more technologically advanced activities. Its prevalence in

developed economies has also become more widely recognized. In light of its signif-

icance, this paper reviews research on the informal sector from a management and

organization scholarship perspective, rather than from an entrepreneurship view, as

has been the focus until now. It sets out the atypical management practices that are

inherent in the sector, explores the under-researched relationship between formal and

informal firms, and highlights definitional, conceptual and other limitations in extant

research. As a step in resolving these issues, the authors presenta conceptual model of

formality and informality in a three-dimensional framework that highlights an orga-

nizational infrastructure dimension, a view of firms operating along a continuum, and

a multi-level analytical context. Building on this, the authors detail opportunities for

enhanced appreciation of in situ management and organizational practices in the infor-

mal sector and outline tools for pursuing a management and organization scholarship

agenda. Overall, the authors argue that management scholarship has great potential

to improve understanding of the informalsector, and that the informal sector provides

opportunities to advance management theory, research and practice.

Introduction

The informal sector is a key contributor to the pro-

vision of essential products and services and em-

ployment generation (Chen 2006). Informal-sector

businesses may also be essential to the competitive-

ness of formal firms and regional economies through

their involvement in supply chains and strategic net-

works (Blunch et al. 2001; Jones et al. 2006). These

trends are integral to contemporary neoliberal capi-

talism and globalization, as large multinational enter-

prises strategize to save costs and maximize return on

The authors wouldlike to acknowledge the Strategy Research

Foundation of the Strategic Management Society for partly

funding the doctoral research project that inspired this paper.

investments via the use of cheaper inputs and flexible

production arrangements, often brokered by smaller

informal businesses and agents (Jones etal. 2006;

Kar and Marjit 2009; Piore and Sabel 1984; Portes

et al. 1989).

Early theorization described the informal sector as

a transient economic phenomenon of less developed

economies that was destined to disappear when de-

velopment ‘catches up’ with those economies (Lewis

1958; Tokman 1978). The informal sector was var-

iously labelled as: ‘underground’, ‘black’, ‘hidden’,

‘irregular’, ‘second’ and ‘criminal’ (G¨

erxhani 2004;

Henry and Sills 2006). Unlike the formal sector, the

informal sector is not properly registered, recorded

or enumerated, with businesses operating ‘off-the-

books’ and failing to pay taxes or obey labour and

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302 W.P.K. Darbi et al.

employmentlaws (Chen 2006; G ¨

erxhani 2004). Atyp-

ical resources and management practices are also re-

garded as defining characteristics of businesses op-

erating in the informal sector (Blunch et al. 2001;

Godfrey 2011).

However, despite how the informal sector is usu-

ally framed,the sector has increased in size from about

37% of gross domestic product (GDP) in the 1990s to

approximately 50% by2010 in developing economies

(Charmes 2012). In these economies, the informal

sector employs about 40–80% of the working pop-

ulation (ILO 2004). The sector has a growing and

disguised character in developed economies (Blunch

et al. 2001; Chen 2006, 2012) and accounted for an

average of about 16% of GDP of developed countries

in 2012 (Schneider 2012). In advanced economies,

the importance of the informal sector as an employ-

ment alternative is often highlighted during economic

and financial crises when labour and businesses move

between the informal and formal sectors (Biggs et al.

2015; Horn 2009; Schneider 2012).

Informal-sector activities now include more tech-

nologically advanced manufacturing and service op-

erations (Adom and Williams 2012; Jones et al.

2004, 2006; Lee and Hung 2014; Siqueira and Bru-

ton 2010), unlike unsophisticated operations such as

street-vending, hawking and shoe-shining identified

in earlier studies (Hart 1973; ILO 1972), and which

arguably dominate academic and public perception

of the sector. This has led to a renewed interest in

informal-sector studies (e.g. Leonard 1998; Schnei-

der 2000, 2011, 2012; Williams 2004, 2005, 2007a).

Despite its contributions and heightened scholarly in-

terest, management scholarship on the sector remains

incommensurate with its importance (Bruton et al.

2012; Webb et al. 2014).

While a body of conceptual and empirical research

on management and organization perspectives on the

informal sector is yet to amass for a more ‘conven-

tional’ review (Jones and Gatrell 2014; Short 2009),

this paper, similar to that by Wright and Boswell

(2012) on macro and micro human resource man-

agement, explores the intersections of previously in-

dependent research locales, with the aim of bridging

perspectives and advancing management and organi-

zational scholarship. To establish a base of relevant

material to examine for this narrative review, an initial

systematic review was conducted through recognized

bibliometric databases, including Scopus and Webof

Science (WoS).These databases include jour nals and

recent conference proceedings, although books and

book chapters are limited. For example, according

to Ordu˜

na-Malea et al. (2015), the percentages of

documents by type collected in WoS for the period

1900 to 2014 indicate that ‘Journal document type’

(composed of articles, abstracts, editorial material

and letters) represents 75% of all documents, ‘Pro-

ceedings’ 21%, and ‘Book and Book chapters’ only

1%. A snowball method wasthen used to follow up on

references cited in relevant WoS/Scopus listed publi-

cations. This then enabled potentially relevant books,

book chapters and peer- or expert-reviewed govern-

ment and research reports to be identified and as-

sessed. Items were included according to our judge-

ment of relevance and quality based on reading the

work, prioritizing those that meet Adams et al. (2016,

p. 4) Tier 1 criteria for source expertise and outlet

control. Such an approach is in keeping with Adams

et al.’s (2016) suggested guidelines for working with

the grey literature in systematic reviews for manage-

ment and organizational studies. As they observed,

the ‘benefits of grey literature are in its use not only

to extend the range of evidence, but to fill gaps in

the academic literature’ (Adams et al. 2016, p. 7). In

addition, an analysis was conducted of paper presen-

tations at key international conferences, e.g. British

Academy of Management, Strategic Management

Society, to help inform the review.

This paper therefore explicates the substantial re-

search opportunities that the informal-sector phe-

nomenon provides for management and organization

theory, research and practice that have been predom-

inantly developed and observed in formal settings,

and vice versa. Integral to this, we outline the contri-

butions that other fields that have extensively studied

the informal sector may make to a management and

organization perspective. We further draw on previ-

ous management and organization-focused reviews

particularly those of Bruton et al. (2012), Godfrey

(2011) and McGahan (2012), while exploring further

avenuesfor developing and extending these important

previous works.

Toward this end, the review examines distinctive

management and organizing practices in the informal

sector in light of normative management and orga-

nizational concepts, theories and practices. An im-

portant impetus for informal-sector studies is how an

understanding of the informal sector also helps under-

standing of the formal sector. The literature supports

the existence of important relationships between the

two sectors, but the nature, management, exact ‘ongo-

ings’ and outcomes of these relationships are not well

understood. This offers several avenues for manage-

ment scholarship, which we review later in the paper.

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