Main Article Content
Abstract
The informal economy has consistently contributed to social and economic development through income and job creation, thereby enhancing people’s well-being. This paper examines the implications of existing policy gaps in Nigeria’s informal sector and how these gaps contribute to the welfare burden on informal-sector workers. The study provides a description of the informal economic sector and offers a general overview based on relevant literature. Data from the Nigerian Bureau of Statistics (NBS), the International Labor Organization (ILO), and the International Monetary Fund (IMF) were used to assess the size and components of Nigeria’s informal economy, as well as its role in the country’s economic growth and the welfare of its people. The study finds that informal sector significantly supports welfare through job creation and functions as an economic shock absorber. The study concludes that the government should recognize and prioritize the informal economy in its development policies and implement a more inclusive and equitable social protection framework to lessen the welfare burden on informal-sector workers.
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Copyright (c) 2025 Adebukola O. Dagunduro, Joseph Jiboku

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References
- Aguilar, A. G. & Guerrero, F. M. L. (2020). Informal sector. In A. Kobayashi (Ed.). International Encyclopedia of Human Geography (2nd ed., pp. 279-288), Elsevier.
- Aryeetey, E. (2021). Informal economies. Oxford Research Encyclopedia of African History. Oxford University Press. https://doi.org/10.1093/acrefore/9780190277734.013.753
- Atkin, D., Faber, B., Fally, T., & Gonzalez-Navarro, M. (2024). Measuring welfare and inequality with incomplete price information. The Quarterly Journal of Economics, 139(1), 419–475
- Augustine, A. A., Olaoye, A. S., & Lawal, A. B. (2020). Informal sector and tax compliance in Nigeria: Challenges and Opportunities. International Journal of Emerging Trends in Social Sciences, 8(2), 57–69. https://doi.org/10.20448/2001.82.57.69
- Bastian, B. L.; Metcalfe, B.D.& Zali, M.R. (2019). Gender inequality: Entrepreneurship development in the MENA Region. Sustainability, 11 (6472). https://doi.org/10.3390/su11226472
- Bank of Industry (BOI) (2022). Economic development through the Nigerian informal sector: A BOI perspective. https://www.boi.ng/economic-development-through-the-nigerian-informal-sector-
- Burton, M. D., Fairlie, F.W., & Siegel, D. (2019). Introduction to a special issue on entrepreneurship and employment: Connecting labor market institutions, corporate demography, and human resource management practices. ILR Review, 72(5), 1050–1064. https://doi.org/10.1177/0019793919866409
- Chen, M. A. (2012). The informal economy: Definitions, theories and policies. WIEGO Working Paper No. 1. Women in Informal Employment: Globalizing and Organizing (WIEGO). https://www.wiego.org/publications/informal-economy-definitions-theories-and-policies
- Chipman, J. S., & Moore, J. C. (1978). The new welfare economics, 1939–1974. International Economic Review, 19(3), 547–584. https://doi.org/10.2307/2525843
- Cooper, K., Fabian, M., & Krekel, C. (2023). New approaches to measuring welfare. Fiscal Studies, 44(2), 123–135. https://doi.org/10.1111/1475-5890.12333
- Cole, W. E, & Fayissa, B. (1991). The urban subsistence Labour force: Toward a policy oriented and empirically accessible taxonomy, World Development, 19 (7), 779-789. https://doi.org/10.1016/0305-750X(91)90132-2
- Dell'Anno, R,. & Adu, O. (2020). The size of the informal economy in Nigeria: a structural equation approach. International Journal of Social Economics, 47 (8), 1063-1078. https://doi.org/10.1108/IJSE-12-2019-0747
- Etim, E., & Daramola, O. (2020). The informal economy and economic growth of South Africa and Nigeria: A comparative systematic review Journal of Open Innovation: Technology, Market, and Complexity, 6, (4). https://doi.org/10.3390/joitmc6040134
- Frosch, M., & Walsh, K. (2025). Understanding the informal economy and informal employment – the statistical challenge. Statistical Journal, 15(2), 123-145. https://doi.org/10.1177/18747655241298565
- Garzarelli, G., & Limam, Y. R. (2019). Physical capital, total factor productivity, and economic growth in sub-Saharan Africa. South African Journal of Economic and Management Sciences, 22(1). https://doi.org/10.4102/sajems.v22i1.2309
- Haughton, J., & Khandker, S. R. (2009). Handbook on Poverty and Inequality. World Bank. https://doi.org/10.1596/978-0-8213-7613-3
- Holmes, R., Akinrimisi, B., Morgan, J., & Buck, R. (2012). Social protection in Nigeria: Mapping programmes and their effectiveness. Overseas Development Institute (ODI). https://odi.org
- International Labour Organization (ILO) (2003). Report 1, General Report. In Proceedings of the 17th International Conference of Labour Statisticians, Geneva, Switzerland, 23 November–3 December 2003. https://www.ilo.org/meetings-and-events/17th-international-conference-labour-statisticians
- International Labour Organization (ILO). (2012). Employment and Gender Differences in the Informal Economy.
- International Labour Organization (ILO). (2018). Women and Men in the Informal Economy: A Statistical Picture (3rd ed.). International Labour Organization: Geneva, Switzerland. https://www.ilo.org/publications/women-and-men-informal-economy-statistical-picture-third-edition
- International Labour Organization (ILO). (2023). Informal economy. https://www.ilo.org/ilo-employment-policy-job-creation-livelihoodsdepartment/branches/employment-investments-branch/informal-economy
- International Monetary Fund (IMF). (2022). Nigeria: Selected issues paper—Informal sector dynamics. IMF Country Report No. 22/92. https://www.imf.org/en/Publications/CR/Issues/2022/03/01/Nigeria-Selected-Issues-514152
- Johnston, M. P. (2014). Qualitative and Quantitative Methods in Libraries, (QQML) 3, 619-626.
- Kassahun, H. T., Jacobsen, J. B., & Nicholson, C. F. (2020). Revisiting money and labor for valuing environmental goods and services in developing countries. Ecological Economics, 177. https://doi.org/10.1016/j.ecolecon.2020.106771
- Kungwansupaphan, C., & Leihaothabam, J.K.S. (2016). Capital factors and rural women entrepreneurship development: A perspective of Manipur state, India. Gender in Management: An International Journal 3 May 2016; 31 (3): 207–221. https://doi.org/10.1108/GM-04-2015-0031
- Mahadea, D., & Zogli, L.K.J. (2018). Constraints to growth in informal economy activities and formalization: A case study of Ghanaian slums. The South African. Journal of. Entrepreneurship and Small Business. Management, 10(1), 1–9. https://journals.co.za/doi/abs/10.4102/sajesbm.v10i1.130
- Meyer, B. D., & Sullivan, J. X. (2003). Measuring the well-being of the poor using income and consumption. The Journal of Human Resources, 38(1), 118-155. https://doi.org/10.2307/3559022
- Muhammad, S., Kong, X., Saqib, S. E, & Beutell, N. J. (2021). Entrepreneurial income and wellbeing: Women’s informal entrepreneurship in a developing context. Sustainability, 13(18). https://doi.org/10.3390/su131810262
- National Salaries, Incomes and Wages Commission (NSIWC). (2024). Incomes survey of the informal sector of the Nigerian economy 2023. https://nsiwc.gov.ng/incomes-survey-of-the-informal-sector-of-the-nigerian-economy-2023/?utm_source=chatgpt.com
- NBS (2023). Nigeria Labor Force Survey Q2, 2023
- OECD/ILO (2019). Tackling Vulnerability in the Informal Economy, Development Centre Studies, OECD. https://doi.org/10.1787/939b7bcd-en.
- Ogunniyi, A., & Olagunju, K. (2024). Participation and returns from informal service-oriented non-farm enterprises: Evidence from a survey of Nigerian households. PLOS ONE, 19(2), e0298794. https://doi.org/10.1371/journal.pone.0298794
- Onwo, A. O., & Ohazulike, G. A. (2021). Employment in the informal sector in Nigeria: Implications for sustainable economic development. UNIZIK Journal of Business, 4(1). https://doi.org/10.36108/unizikjb/1202.40.0160
- Osiki, A. (2020). ‘Esusu cooperative’ as a means of extending social protection to the Nigerian informal economy. Contemporary Social Science, 15(4), 461–475. https://doi.org/10.1080/21582041.2020.1766695
- Pettinger, T. (2017). Economic Downturn Definition. https://www.economicshelp.org/blog/6976/economics/economic-downturn-definition/
- Premium Times Nigeria (2023). The informal economy: The backbone of Nigeria’s economy. Premium Times Online. https://www.premiumtimesng.com/opinion/647617-the-informal-sector-the-backbone-of-nigerias-economy-by-ibrahim-shelleng.
- Sakanko, M.A., & Ewugi, M.S. (2017). An evaluation of the impact of informal economy on economic growth in Nigeria using error correction model (ECM). Lapai International Journal of Administration, 1(2), 165–177.
- Sen, A. (1999). Development as Freedom. Oxford University Press.
- Uko, F. E., Akpanoyoro, M. J., & Polycarp, E. J. (2020). An evaluation of the contribution of the informal sector in employment and income generation in Nigeria: Thematic approach. Social Sciences and Management International Journal, 1(2), 66–92.
- United Nations Conference on Trade and Development (UNCTAD). (2021). Informal employment. Development and Globalization: Facts and Figures 2021. https://dgff2021.unctad.org/annexes/glossary/informal-employment/
- WIEGO. (2023). Understanding the Informal Economy. https://www.wiego.org/informal-economy/
References
Aguilar, A. G. & Guerrero, F. M. L. (2020). Informal sector. In A. Kobayashi (Ed.). International Encyclopedia of Human Geography (2nd ed., pp. 279-288), Elsevier.
Aryeetey, E. (2021). Informal economies. Oxford Research Encyclopedia of African History. Oxford University Press. https://doi.org/10.1093/acrefore/9780190277734.013.753
Atkin, D., Faber, B., Fally, T., & Gonzalez-Navarro, M. (2024). Measuring welfare and inequality with incomplete price information. The Quarterly Journal of Economics, 139(1), 419–475
Augustine, A. A., Olaoye, A. S., & Lawal, A. B. (2020). Informal sector and tax compliance in Nigeria: Challenges and Opportunities. International Journal of Emerging Trends in Social Sciences, 8(2), 57–69. https://doi.org/10.20448/2001.82.57.69
Bastian, B. L.; Metcalfe, B.D.& Zali, M.R. (2019). Gender inequality: Entrepreneurship development in the MENA Region. Sustainability, 11 (6472). https://doi.org/10.3390/su11226472
Bank of Industry (BOI) (2022). Economic development through the Nigerian informal sector: A BOI perspective. https://www.boi.ng/economic-development-through-the-nigerian-informal-sector-
Burton, M. D., Fairlie, F.W., & Siegel, D. (2019). Introduction to a special issue on entrepreneurship and employment: Connecting labor market institutions, corporate demography, and human resource management practices. ILR Review, 72(5), 1050–1064. https://doi.org/10.1177/0019793919866409
Chen, M. A. (2012). The informal economy: Definitions, theories and policies. WIEGO Working Paper No. 1. Women in Informal Employment: Globalizing and Organizing (WIEGO). https://www.wiego.org/publications/informal-economy-definitions-theories-and-policies
Chipman, J. S., & Moore, J. C. (1978). The new welfare economics, 1939–1974. International Economic Review, 19(3), 547–584. https://doi.org/10.2307/2525843
Cooper, K., Fabian, M., & Krekel, C. (2023). New approaches to measuring welfare. Fiscal Studies, 44(2), 123–135. https://doi.org/10.1111/1475-5890.12333
Cole, W. E, & Fayissa, B. (1991). The urban subsistence Labour force: Toward a policy oriented and empirically accessible taxonomy, World Development, 19 (7), 779-789. https://doi.org/10.1016/0305-750X(91)90132-2
Dell'Anno, R,. & Adu, O. (2020). The size of the informal economy in Nigeria: a structural equation approach. International Journal of Social Economics, 47 (8), 1063-1078. https://doi.org/10.1108/IJSE-12-2019-0747
Etim, E., & Daramola, O. (2020). The informal economy and economic growth of South Africa and Nigeria: A comparative systematic review Journal of Open Innovation: Technology, Market, and Complexity, 6, (4). https://doi.org/10.3390/joitmc6040134
Frosch, M., & Walsh, K. (2025). Understanding the informal economy and informal employment – the statistical challenge. Statistical Journal, 15(2), 123-145. https://doi.org/10.1177/18747655241298565
Garzarelli, G., & Limam, Y. R. (2019). Physical capital, total factor productivity, and economic growth in sub-Saharan Africa. South African Journal of Economic and Management Sciences, 22(1). https://doi.org/10.4102/sajems.v22i1.2309
Haughton, J., & Khandker, S. R. (2009). Handbook on Poverty and Inequality. World Bank. https://doi.org/10.1596/978-0-8213-7613-3
Holmes, R., Akinrimisi, B., Morgan, J., & Buck, R. (2012). Social protection in Nigeria: Mapping programmes and their effectiveness. Overseas Development Institute (ODI). https://odi.org
International Labour Organization (ILO) (2003). Report 1, General Report. In Proceedings of the 17th International Conference of Labour Statisticians, Geneva, Switzerland, 23 November–3 December 2003. https://www.ilo.org/meetings-and-events/17th-international-conference-labour-statisticians
International Labour Organization (ILO). (2012). Employment and Gender Differences in the Informal Economy.
International Labour Organization (ILO). (2018). Women and Men in the Informal Economy: A Statistical Picture (3rd ed.). International Labour Organization: Geneva, Switzerland. https://www.ilo.org/publications/women-and-men-informal-economy-statistical-picture-third-edition
International Labour Organization (ILO). (2023). Informal economy. https://www.ilo.org/ilo-employment-policy-job-creation-livelihoodsdepartment/branches/employment-investments-branch/informal-economy
International Monetary Fund (IMF). (2022). Nigeria: Selected issues paper—Informal sector dynamics. IMF Country Report No. 22/92. https://www.imf.org/en/Publications/CR/Issues/2022/03/01/Nigeria-Selected-Issues-514152
Johnston, M. P. (2014). Qualitative and Quantitative Methods in Libraries, (QQML) 3, 619-626.
Kassahun, H. T., Jacobsen, J. B., & Nicholson, C. F. (2020). Revisiting money and labor for valuing environmental goods and services in developing countries. Ecological Economics, 177. https://doi.org/10.1016/j.ecolecon.2020.106771
Kungwansupaphan, C., & Leihaothabam, J.K.S. (2016). Capital factors and rural women entrepreneurship development: A perspective of Manipur state, India. Gender in Management: An International Journal 3 May 2016; 31 (3): 207–221. https://doi.org/10.1108/GM-04-2015-0031
Mahadea, D., & Zogli, L.K.J. (2018). Constraints to growth in informal economy activities and formalization: A case study of Ghanaian slums. The South African. Journal of. Entrepreneurship and Small Business. Management, 10(1), 1–9. https://journals.co.za/doi/abs/10.4102/sajesbm.v10i1.130
Meyer, B. D., & Sullivan, J. X. (2003). Measuring the well-being of the poor using income and consumption. The Journal of Human Resources, 38(1), 118-155. https://doi.org/10.2307/3559022
Muhammad, S., Kong, X., Saqib, S. E, & Beutell, N. J. (2021). Entrepreneurial income and wellbeing: Women’s informal entrepreneurship in a developing context. Sustainability, 13(18). https://doi.org/10.3390/su131810262
National Salaries, Incomes and Wages Commission (NSIWC). (2024). Incomes survey of the informal sector of the Nigerian economy 2023. https://nsiwc.gov.ng/incomes-survey-of-the-informal-sector-of-the-nigerian-economy-2023/?utm_source=chatgpt.com
NBS (2023). Nigeria Labor Force Survey Q2, 2023
OECD/ILO (2019). Tackling Vulnerability in the Informal Economy, Development Centre Studies, OECD. https://doi.org/10.1787/939b7bcd-en.
Ogunniyi, A., & Olagunju, K. (2024). Participation and returns from informal service-oriented non-farm enterprises: Evidence from a survey of Nigerian households. PLOS ONE, 19(2), e0298794. https://doi.org/10.1371/journal.pone.0298794
Onwo, A. O., & Ohazulike, G. A. (2021). Employment in the informal sector in Nigeria: Implications for sustainable economic development. UNIZIK Journal of Business, 4(1). https://doi.org/10.36108/unizikjb/1202.40.0160
Osiki, A. (2020). ‘Esusu cooperative’ as a means of extending social protection to the Nigerian informal economy. Contemporary Social Science, 15(4), 461–475. https://doi.org/10.1080/21582041.2020.1766695
Pettinger, T. (2017). Economic Downturn Definition. https://www.economicshelp.org/blog/6976/economics/economic-downturn-definition/
Premium Times Nigeria (2023). The informal economy: The backbone of Nigeria’s economy. Premium Times Online. https://www.premiumtimesng.com/opinion/647617-the-informal-sector-the-backbone-of-nigerias-economy-by-ibrahim-shelleng.
Sakanko, M.A., & Ewugi, M.S. (2017). An evaluation of the impact of informal economy on economic growth in Nigeria using error correction model (ECM). Lapai International Journal of Administration, 1(2), 165–177.
Sen, A. (1999). Development as Freedom. Oxford University Press.
Uko, F. E., Akpanoyoro, M. J., & Polycarp, E. J. (2020). An evaluation of the contribution of the informal sector in employment and income generation in Nigeria: Thematic approach. Social Sciences and Management International Journal, 1(2), 66–92.
United Nations Conference on Trade and Development (UNCTAD). (2021). Informal employment. Development and Globalization: Facts and Figures 2021. https://dgff2021.unctad.org/annexes/glossary/informal-employment/
WIEGO. (2023). Understanding the Informal Economy. https://www.wiego.org/informal-economy/