Literature study done for urban ex=conomy as part of urban design studio.

1. FORMALANDINFORMALECONOMY
ECONOMICS -A LITERATURE STUDY, URBAN DESIGN STUDIO VII

2. Economics as defined
ECONOMICS
From the Greek words Oikos meaning household and
nomos meaning management
= household management
The wise production and use of wealth to meet the
demands or needs of the people

3. Economics as defined by Economists
• Paul Samuelson (The Economist)
“the study of how people and society end up choosing, with or without use
of money, to employ scarce resources that could have alternative uses to
produce various commodities among various persons and groups in
society.”
• Roger Le Roy Miller (Economics, Today and Tomorrow)
“Economics concerns situations in which choices must be made about how
to use limited resources, when to use them and for what purposes.
Resources can be defined as the things people use to make the
commodities they want.”
• Hall and Loeberman (Macroeconomics: Principles and Applications)
“The study of choice under the condition of scarcity”

4. Economics as a Science
• Is a science because it is an organized body of truth,
coordinated, arranged and systematized with reference
to certain general laws and principles.(Observation,
Formulation of theories, Gathering of data, Experimentation, Conclusion,
Generalization)
• Economic analysis seeks to explain economic events
using some kind of logic based on a set of systematic
relations.
• It is a social science because the subject matter of
economics is people or societies and their behavior,
unpredictable in nature.

5. Relations of Economics to other Sciences
ECONOMICS
MATHEMATICS
NATURAL
SCIENCE
SOCIOLOGY
GEOGRAPHYHISTORY
ETHICS/
RELIGION
POLITICS

6. Essence of Studying Economics
• To understand the world better
Applying the tools of economics can help you understand global and cataclysmic events such as
wars, famines, epidemics, and depressions. Economics has the power to help us understand these
phenomena because they result from the choices we make under the condition of scarcity.
• To gain self-confidence and become wise decisions makers
Mastery of economics will help you to understand how things work in your society thereby
“feeling equipped”

7. • To achieve social change and contirbute to National
Development
Economics can help us understand the origins of serious social problems
such as: unemployment, hunger, poverty, disease, child abuse, drug
addiction, violent crime. It will also explain why previous efforts to solve
these problems have failed, and help us to design new, more effective
solutions.
• To help prepare for other careers
Economics has long been a popular college major for individuals who are
intending to work in business. But it has also been popular among those
planning careers in politics, international relations, law, medicines,
engineering, etc. This is for good reason because practitioners in each of
these fields often find themselves confronting economic issues.

8. Developments of Economics
INDUSTRIAL STAGE
HANDICRAFT STAGE
AGRICULTURAL STAGE
PASTORAL STAGE
HUNTING AND FISHING

9. Concerns of Economics
• Economics is concerned with PRODUCTION
Production is the use of inputs to produce outputs.
Inputs are commodities or services that are used to produce goods and services.
Outputs are the different goods and services which come out of production process.
Society have to decide what outputs will be produced and in what quantity
• Economics is concerned with DISTRIBUTION
Distribution is the allocation of the total product among members of society. It is
related to the problem of for whom goods and services are to be produced.

10. • Economics is concerned with CONSUMPTION
Consumption is the use of a good or service. Consumption is
the ultimate end of economic activity. WHEN THERE IS NO
CONSUMPTION, THERE WILL BE NO NEED FOR PRODUCTION
AND DISTRIBUTION.
• Economics deals with PUBLIC FINANCE
Public Finance is concerned with government expenditures
and revenues. Economics studies how the government raises
money through taxation and borrowing.

11. Types of Economics
1. Household Economics – most common use of economics is for the
family. At this level, anyone who knows the economic principles
will be able to improve the running of the household.
2. Business Economics – when a person or group of persons begins to
work, they come under the system of business economics in their
workplace. In this type, you deal with the rent, salary, profits and
others.
3. National Economics – Economic factors of problems affecting the
whole nation. Deals with the management of income,
expenditures, wealth or resources of a nation.
4. International Economics – The highest stage of economic activities
involving the business of one country with other countries like
trade, tourism, exchange rates.

12. DIVISIONS OF ECONOMICS
ECONOMICS
MICROECONOMICS MACROECONOMICS

13. Microeconomics – The branch of economics that examines the
functioning of individual industries and the behavior of individual
decision making units – that is firms and households.
Macroeconomics – The branch of economics that examines
the economics behavior of aggregates income, employment, and
output on a national scale.

14. • Scarcity
• Opportunity Cost
• Demand
• Supply
Microeconomics – The branch of economics that examines the
functioning of individual industries and the behavior of individual
decision making units – that is firms and households.

15. Scarcity – exists because individuals want more than
can be produced.
- means the good available are too few to satisfy
individuals’ desires.

16. Opportunity Cost – the benefit that you might have
gained from choosing the next best alternative.
- the benefit forgone of the next best alternative
to the activity you have chosen.

17. Demand
The law of demand :
change in price, change in quantity.
Price  Quantity 
Price  Quantity 

18. Shift in demand curve
• 1. Change in society income
(Normal good & Inferior good)
• 2. Change in the price of related goods.
(Substitutes & Compliments)
• 3. Change in consumer tastes
• 4. Change in consumer expectation
• 5. Change in taxes and subsidies

19. Supply .
The law of supply – change in price, change in quantity supplied.
Price   Quantity
Price   Quantity

20. Shift in Supply
• 1. Change in the price of inputs
• 2. Change in technology
• 3. Change in supplier expectations
• 4. Change in taxes and subsidies

21. Income and consumption
What is national income ?
• National income measures the total value of goods and services
produced within the economy over a period of time
• National Income can be denoted in different ways with different
meaning attached to it.
Gross Domestic Product (GDP)
Gross National product (GNP)
Net National Product (NNP)

22. • The GDP of India has grown from a merge 93.7 billion
rupees in 1950 to about 410006.4 billion rupees in
2006.
• India's per capita income (nominal) is $ 1219, ranked
142nd in the world, while its per capita purchasing
power parity (PPP) of US $3,608 is ranked 129th.

24. Strengths of INDIAN ECONOMY
Demographics of India
are favorable.
India is well placed to
benefit from globalization
and outsourcing.
There is much scope for
increases in efficiency.

25. Problems faced in Indian Economy
Inflation.
Poor educational standard.
Poor Infrastructure.
Balance of payment deterioration
High level of debt
Large budget deficit
Rigid labour laws

26. Measures to promote Employment
• Rural works programme
• Marginal farmers and
Agricultural Labourers

27. EXTERNAL TRADE AND
INVESTMENT

28. What is External Trade?Exchange of capital, goods, and services across international
borders or territories.
In most countries it represents significant share of gross
domestic product (GDP).

29. Importance Of External Trade
• International trade is exchange of capital, goods, and services
across international borders or territories. In most countries, it
represents a significant share of gross domestic product (GDP)

30. • International trade is the backbone of our modern, commercial
world, as producers in various nations try to profit from an
expanded market, rather than be limited to selling within their
own borders.

31. INFORMAL ECONOMY

32. HISTORY AND BACKGROUND
In 1954, a prediction by W.Arthur Lewis reflected the perspective that traditional sector (petty
trade , small scale production, casual jobs) would get absorbed into the modern
capitalist/formal economy world; & thereby disappear.
The economic development in developing countries would, in the long-term, generate
enough modern jobs to absorb surplus labour from the traditional economy. This would lead
to a turning point when wages would begin to rise above the subsistence level: what is
referred to even today as the “Lewis Turning Point” (Lewis 1954).
After it was implemented in Europe and Japan after World War II, the expansion of mass
production led to unemployment, due to rapid advances in technology.
The term “informal sector” had been coined by a British anthropologist, Keith Hart, in his
1971 study of low-income activities among unskilled migrants from Northern Ghana to the
capital city, Accra, who could not find wage employment (Hart 1973).

33. Street vendors; push-cart
vendors; rickshaw pullers
,garbage collectors; and roadside
barbers are the most visible kind
of informal sector workers

34. Those who work on the streets or in the open air are the most visible informal workers.
Other informal workers are engaged in small shops and workshops that repair bicycles and
motorcycles; recycle scrap metal; make furniture and metal parts; tan leather and stitch
shoes; weave, dye, and print cloth; polish diamonds and other gems; make and embroider
garments; sort and sell cloth, paper, and metal waste; and more. The least visible informal
workers, the majority of them women, work from their homes. Other categories of work
that tend to be informal in both developed and developing countries include: casual
workers in restaurants and hotels; subcontracted janitors and security guards; day
labourers in construction and agriculture; piece-rate workers in sweatshops; and
temporary office helpers or off-site data processors.

35. THE ILLEGAL OR UNDERGROUND SECTOR
In yet another approach—often focused on developed or transition countries—the
informal sector is seen as illegal or hidden/underground production. Illegal production
refers to production activities which are forbidden by law or which become illegal when
carried out by unauthorized producers; while underground production refers to
production activities which are legal when performed in compliance with regulations,
but which are deliberately concealed from authorities (United Nations Statistical
Commission 1993). Any type of production unit (formal or informal) can engage in any
type of production (illegal; legal underground; legal, not underground). The empirical
and policy question is what share and which components of the informal economy,
especially in developing countries, are deliberately illegal or underground.

36. RECENT THINKING
STATISTICAL APPROACHFor purposes of analysis and policymaking it is useful to, first, sub-divide informal employment into self-employment and wage employment,
and then within these broad categories, into more homogeneous sub-categories according to status in employment, as follows:
Informal self-employment including:
• employers in informal enterprises
• own account workers in informal enterprises
• contributing family workers (in informal and formal enterprises)
• members of informal producers’ cooperatives (where these exist)
Informal wage employment:
employees hired without social protection contributions by formal or informal enterprises or as paid domestic workers by households.
Certain types of wage work are more likely than others to be informal. These include:
•employees of informal enterprises
•casual or day labourers
•temporary or part-time workers
•paid domestic workers
•contract workers
•unregistered or undeclared workers
•industrial outworkers (also called homeworkers)

37. WIEGO Model of Informal Employment: Hierarchy of Earnings & Poverty Risk by
Employment Status & Sex

38. TRENDS IN FORMAL AND INFORMAL
ECONOMY IN THE RECENT YEARS

39. From the above table it is seen that the informal employment increases overtime
along with the estimated population and labour force, while the formal employment
decreases in recent years. These are represented in absolute numbers.

40. From the above figure it is seen that informal employment has the higher share
(more than 90%) for the entire study period. Though there was a slight increase
in the percentage share of formal employment in the year 1999-2000, it has
decreased again afterwards.

41. From the above table it is seen that the percentages share of informal employment
has increased in all the three sectors. In the primary sector about 98.79% workers
are informally employed in 1999-2000. This figure has slightly increased to 98.89% in
2004-05. In the secondary sector, the percentage of informal employment has
increased from 85.56% in 1999-2000 to 89.39% in 2004-05. In the tertiary sector also
the informal employment has increased from 75.83% in 1999-2000 to 79.70% in
2004-05.

43. Links with Formal Firms & Formal Regulations
Most source raw materials from and/or supply finished goods to formal firms either directly or through
intermediate (often informal) firms.
Sourcing and supplying of goods or services can take place through individual transactions but are more likely to
take place through a sub-sector network of commercial relationships or a value chain of subcontracted
relationships.
To understand the linkages between informal enterprises and formal firms it is important to consider the nature of
the production system through which they are linked which is as follows:
•Individual transactions: Some informal enterprises or own account operators exchange goods and services with
formal firms in what might be characterized as open or pure market exchange (in the sense of independent units
transacting with each other). In such cases, the dominant firm in terms of market knowledge and power—usually
the formal firm—controls the exchange or transaction.
•Sub-sectors: Many informal enterprises or own account operators produce and exchange goods and services with
formal firms in what are called sub-sectors, that is, networks of independent units involved in the production and
distribution of a particular product or commodity. In such networks, individual units are involved in a series of
transactions with suppliers and customers. The terms and conditions of these transactions are governed largely by
the dominant firm in specific transactions (as above) but also by the “rules of the game” for the sub-sector as a
whole, which typically are determined by dominant firms in the network.
•Value chains: Some informal enterprises and own account operators and, by definition, all subcontracted workers
produce goods within a value chain. The terms and conditions of production in value chains are determined largely
by the lead firm: in domestic chains, a large national firm and, in global value chains, a large transnational company.
The major suppliers to the lead firm—and often formal firms—also help determine the terms and conditions of
subcontracts to informal firms and workers down the chain.

44. Formalization of the Informal Economy
At the heart of the policy debates on the informal economy is the question of whether
and how to formalize the informal economy. Different observers have different notions
of what formalization of the informal economy means. To some, it means shifting
informal workers to formal wage jobs—but this requires creating more formal wage
jobs. To others, it means registering and taxing informal enterprises. For informal
workers and operators, many of whom already pay taxes (such as VAT) or fees of various
kinds (e.g. licence fees to operate and/or site fees to operate in specific locations) or are
willing to pay taxes or fees in return for benefits, it means gaining access to legal and
social protection as well as support services (e.g. skills or business training) and being
allowed to organize and to be represented in relevant rule-setting, policymaking, and
collective bargaining processes
it is important to note that formalization has different dimensions beyond just
registering and paying taxes, including: receiving the legal and social protections
enjoyed by formal firms and formal workers; receiving the tax holidays and incentive
packages enjoyed by formal firms; being allowed to organize and to have representative
voice in rule-setting and policymaking processes; and more

45. CONCLUSION
The size of the unorganized sector is higher in terms of percentages share than organized sector for the
entire study periods.
However, during this study period there has been a decreasing trend in the unorganized sector‟s share.
In spite of that decreasing trend, still it accounts for a large share (almost 60%) in total NDP.
Informal employment increases overtime along with the estimated population and labour force, while the
formal employment decreases in recent years.
In this context, it is very important to note that though the size of unorganized sector in terms of its
percentage shares in NDP decreases overtime, in terms of informal employment it is increasing over time.
So, it can be concluded that organized sector is expanding in terms of its percentage share in NDP but this
growth is unable to create formal employment i.e., the growth of the formal sector is jobless growth.

46. REFERENCES
 The Informal Economy: Definitions, Theores and Practices (working paper)
By Martha Alter Chen
Pub. Date: Aug 2012
 Urban Challenges: The Formal and Informal Economies in Mega cities
By PW Daniels
Pub date: 2004
 Liberalization, Informal sector and Formal sector’s Relationship
By Indrajit Bairagya
Pub. Date: 24 Aug

52. URBAN ECONOMICS AND ZONING
• ECONOMICS, A LITERATURE STUDY

53. URBAN ECONOMICS
The economic concepts relevant to urban development are collectively
known as urban economics. These urban economic concepts are
modified tools of analysis developed to help in identifying urban
problems before they assume gigantic proportions and become
intractable and to devise solutions and evaluate their likely effects for
consideration by governments, politicians, experts and general public.
This also helps in increasing one’s understanding of how an urban
economy works and how it is likely to react to various endogeneous
and exogeneous forces.

54. The system:
The areas of interest to the professional urban economic analysts are
the major consumption and production decisions made by urban
dwellers, the formulation, designing and evaluation of public policies
that can effectively improve urban form and life.
It also acts as a system interacting with private and public sectors.

55. URBAN ECONOMICS AND ZONING
Introduction
• Does land go to the highest bidder?
• Government role in urban land market—maybe not if regulated.
• Zoning to separate different land uses into separate zones.
• Commercial, industrial, and residential (low and high density)
• Growth controls limit population growth
• Tax new development (impact fees); limit building permits; limit urban services to
selected areas; urban growth boundaries
• Who wins and who loses?—what are the trade-offs

56. EARLY HISTORY OF ECONOMIC ZONING
• Comprehensive zoning started in 1916 (in New York City and 8 other cities)—and by
1936, zoning had spread to over 1,300 cities.
• The basic idea of zoning is to separate land uses that are ‘incompatible’ in some senses
• Innovations in transportation increased the location options for business, setting
the stage for industrial zoning.
• Truck: replaced horse cart, causing industry to move out of central city to suburbs near residential
areas.
• Bus: before bus flexibility—low income (high density) households between streetcar spokes; after
workers could locate elsewhere.
• Zoning to exclude industry and high-density housing?

57. ZONING AS AN ENVIRONMENTAL
POLICY
• Industrial Pollution
• Zoning separates residents from pollution
• Zoning doesn’t reduce pollution but moves it around buffer
• Economic approach: internalize externality with pollution tax
• Retail Externalities: congestion, noise, parking conflicts.
• High-density housing: congestion, parking, blocked views
• Alternatives: performance standards for traffic, noise, parking views.

58. PROVISION FOR OPEN SPACES
• Public land: parks and
greenbelts
• Restrictions on private land:
preservation of farm or forest
land—through restrictions on
subdivision for residential or
commercial uses.
• What is the efficient level of
open space?
• Marginal benefit: marginal cost ( in
this case MC=marginal value of
the next acre of land)
• How does zoning affect the
efficiency of the land market?
Or should the govt. buy the
land?
• Pay full cost of the land? Or shift
the cost of open space provision to
private land owner?