“Why do we work here?”: A case study on the informal economy of Guadalajara, Mexico

Abstract

Comprising over 60% of the world’s employed population, the informal economy has been a growing phenomenon ever since it emerged after WWII. Nevertheless, compared to its vastness and diversity, there has not been enough research done. In fact, most studies are carried out by individuals who are represented by numbers and statistics. This paper aims to give a voice to those employed in the informal sector and deepen the understanding of the informal economy. The study was carried out using a single-case study strategy in the neighborhood of Obregon in Guadalajara, Mexico. The data collection was done through 3 sets of semi-structured interviews, a ten-month-long participant observation, field notes, newspaper articles, and documents. The findings were analyzed through grounded theory techniques and positioned within the new institutional economic theory.

The study findings were divided into three main parts. The first focused on informal institutions that hold together the informal economy: trust, repetition and reputation, social exchanges, and culture. It was explored through the system of “fiar” or credit. The second part focused onhow formal institutions drive people into the informal economy. The formal institutions that drive people into the informal economy are the government, social security, and taxes. Among these, the most significant driver was the government due to the lack of well-established welfare programs, funding, and its corruption. The last part focused on the implication of the findings toward formalization and sustainability. It was found that in order to bring formalization to the informal economy, the lack of jobs in the formal sector, the inefficiency of government, and the lack of well-established welfare programs should be tackled.

Nevertheless, it was also found that jobs offered from the formal economy should bring satisfaction and balanced pressure to be appealing for workers in the informal sector. Decent jobs may not always be enough to persuade the transition to formal jobs. Therefore, due to the pervasiveness and diversity of the informal sector, this study suggests more research to gain deeper understanding of the phenomenon. While our goal can be the formalization of the informal sector, we should also address the potential it has towards the economy and sustainable development. The informal economy will not disappear in a day and neither is sustainability going to be achieved likewise. It will be a process of finding the right methods, partnering, and patience while moving towards the goal to ensure no one is left behind.