Measuring the Informal Economy – One Neighborhood at a Time


The study of the urban informal economy has expanded in the last thirty years, challenging researchers to find more accurate methods of quantifying its activity. This paper examines recent research on methods to measure informal economic activity and articulates the need for further research. In particular the paper focuses on the urban informal economy in particular, and evaluates different definitions and techniques for measuring it. Methods discussed include indirect estimation methods, such as currency demand, electricity consumption, and labor force statistical profiles, as well as direct estimation measures such as labor force and household surveys. This paper discusses the prospects for applying these largely macro-level methods to more micro-market analysis and speculates on the availability and usefulness of existing data sources in the United States. It concludes by suggesting that there is much room for further research on the size, determinants and implications of the informal economy in American cities and calls for new efforts to align different methods of measuring the informal economy so they can be increasingly used to support decisionmaking processes in the public and private sectors.