Formalizing the Informal Sector: Barriers and Costs


  • Ricardo A. Lagos

    Search for more papers by this author
    • 1

      Ricardo A. Lagos (International Labour Office, Casilla 19034, Santiago, Chile) is Research Coordinator for a regional project on ‘Population, Poverty and the Labour Market in Latin America’, a joint project funded by the UNFPA and executed by the ILO. His current research interests lie in the fields of poverty and labour markets in developing countries. He has published a number of recent articles, including ‘Debt Relief through Debt Conversion: A Critical analysis of the Chilean debt conversion programme’ (Journal of Development Studies, April 1992) and ‘What is meant by Labour Market Flexibility?’ (CEPAL Review, December 1994).


This article uses material from a series of case studies conducted in Latin America to analyse various aspects of the formalization of the informal sector. In particular, it examines the legal and bureaucratic barriers confronting informal sector micro-enterprises which seek to become part of the formal, legal circuit, and assesses the costs in time and money which are involved in the formalization process. The process itself is seen as consisting of two elements — achieving legality and retaining that status over time — each of which involves certain bureaucratic and financial demands. While recognizing that the requirements for formalization can represent a burden in some cases, the main finding of the article is that the procedures and related costs vary between countries to such a degree that it is impossible to claim, as some earlier studies have done, that disproportionate regulation and bureaucracy constitute an insurmountable obstacle to the legalization of informal sector enterprises.