Different Between Formal and Informal Sector

Different Between Formal and Informal Sector

1. Meaning:

a. The formal sector comprises businesses and economic activities under the government’s supervision.        

b. The informal sector comprises workers and enterprises that do not come under government regulation.

2. Social Security:  

a. Benefits employees in this sector are entitled to Social Security Benefits.    

b. Unlike the formal sector, the employees in this sector are not entitled to Social Security Benefits.

3. Salary/Wage:

a. The pay scale of the formal sector is higher than the informal sector.                  

b. This sector has a comparatively low pay scale.

4. Security:

a. The employees in this sector enjoy job security and fixed working hours.            

b. No such job security or fixed hours are available to the employees in this sector.

5. Tax Benefits:

a. The enterprises in this sector are licensed and liable to pay government taxes.  

b. The enterprises in this sector are not liable to pay taxes to the government.

6. Employees:

a. All public and private sector enterprises that employ more than 10 people are considered to fall under the formal sector.          

b. All the enterprises that employ less than 10 people are considered to fall under the informal sector.

7. Trade Unions:

a. The workers in the formal sector have a right to form Trade Unions to protect their interests.      

b. Workers in this sector have no right to form a Trade Union.

Thus, the formal and informal sectors represent distinct segments of the economy. Both sectors play crucial roles in employment and economic activity, and understanding their differences is essential for creating balanced policies that cater to the workforce’s diverse needs and contribute to overall economic development.