In MEDCs the majority of people are employed or self-employed and pay taxes
on their earnings. If they attempt to avoid their taxes, the inland revenue
services fine them large sums of money. LEDCs are different to this. Although
they have large numbers of people who are employed in the formal sector who work
fixed hours and pay their taxes to the government, there are also an increasing
number of people who are employed in the informal sector. The informal sector in
LEDCs is made up of jobs that people have found for themselves. These include
jobs as beach vendors, shoe shiners and the businesses that set up to serve
shanty town dwellers.
The jobs have much in common:
They require little capital to set up
They require few skills.
Many of them are done from home.
They are labour intensive.
They are small scale.
As urban areas in LEDCs continue to grow, the informal sector will also grow
as there will not be enough jobs in the formal sector. This robs the government
of taxes, but as the money which is earned is generally re-spent the multiplier
effect will apply (see below).