The Informal Economy

Income-generating activities conducted outside traditional employment and wage-tracking systems

Even when accounting for unreported income, more than one in five American workers are still unable to find employment or generate income lifting them above the poverty line.

True

Rate of Unemployment

Out of the Population

+ Informal Work

50.5

2022

Effect of Informal Work on

Overall Functional Unemployment

–1.1

2022

Only

1,013,254

People worked

informally on an

average day

2020–2022

Only

0.41

of all working-age people worked informally on an average day

2020–2022

Only

0.50

of working-age women worked informally on an average day

2020–2022

Only

0.31

of working-age men worked informally on an average day

2020–2022

There is a widespread misconception the informal economy is booming and informal workers are thriving financially, benefiting from lucrative side gigs, tax loopholes for unreported income, or the ability to monetize their hobbies and free time in the booming digital economy.

But this perception is far from the truth. The truth is the informal economy primarily serves as an outlet for the struggling working and middle classes who are unable to secure well-paying jobs in the formal job market.

Official employment statistics fail to accurately capture the informal economy and shed light on how informal workers are truly faring. The question remains: just how pervasive is the informal economy, and how are informal workers doing?

Using data from the Current Population Survey (CPS) and the American Time Use Survey, LISEP tracks the number of people working informally in an average week and the extent to which the informal economy compensates for bad jobs.

LISEP defines informal work broadly as any income-generating activity that is not captured by the CPS. While anyone working “under the table” counts as informally employed, they remain functionally unemployed if they cannot earn a living wage and full-time status when considering both their formal and informal labor combined.

For an in-depth look at the informal economy and its impact on functional unemployment, please reference LISEP’s Informal Economy white paper.

The Informal Economy

The Informal Economy measures informal work through the lens of the True Rate of Unemployment (TRU) to determine the extent to which lower-income individuals rely on unreported income, like gig work or one-off jobs, to bridge the gap to functional employment.

Additional Resources:

Informal Economy White Paper

Informal Economy Summary

Informal Economy Methodology

Impact of the Informal Economy on the Unemployment Rate

Impact of the Informal Economy

on the Unemployment Rate

Select any point on the chart to see the data for that year.

The informal economy has a limited impact on the functional unemployment rate. Overall, informal work accounts for 2.6 million more people being functionally employed, 4.5 million finding jobs, and 3.5 million joining the labor force in an average year. The informal economy’s biggest effect is felt during downturns, when workers rely more on informal work to escape poverty.

Participation in the Informal Economy by Demographic

Participation in the Informal

Economy by Demographic

Percentage of the population working informally on an average day

2003–2022

Select any point on the chart to see the data for that demographic.

Female, young, Black, and Hispanic workers are more likely to work informally.

Top Sectors for Informal Work

2003–2022

Select any point on the chart to see the data for that sector.

When informal workers are formally employed, they’re more likely to be in low-paying occupations.

Formal vs. Informal Labor Force Participation by Sector

Formal vs. Informal Labor Force

Participation by Sector

2003–2022

Select any point on the chart to see the data for that sector.

The Informal Economy

Income-generating activities conducted outside traditional employment and wage-tracking systems

Even when accounting for unreported income, more than one in five American workers are still unable to find employment or generate income lifting them above the poverty line.

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