The informal sector of the economy involves activities that, in both developed and underdeveloped countries, are outside the arena of the normal, regulated economy and thus escape official record keeping. These activities, which include such practices as off-the-books hiring and cash payments, occur mainly in service industries like construction, hotels, and restaurants. Many economists think that the informal sector is an insignificant supplement to the larger formal economy. They base this belief on three assumptions that have been derived from theories of industrial development. But empirical evidence suggests that these assumptions are not valid.

All three assumptions are, essentially, hypotheses about the character of the labor process at different levels of development. The first is that informal activities are transitory, being a consequence of the imperfect penetration of modern capitalism into less developed regions, and are thus destined to disappear with the advance of industrialization. The second is that the principal reason for the continuing existence of an informal sector is to keep a redundant segment of the labor force alive through jobs invented to fit in the interstices of the modern economy. The third is that the informal sector is primarily a feature of peripheral economies such as those of Latin America, Africa, and most of Asia.

Data collected from both developed and underdeveloped countries, however, reveal that the informal sector is neither disappearing with industrialization, limited in function to being an employment alternative of last resort, nor exclusively or particularly a Third World phenomenon. Informal sector employment rates in many countries have remained constant in the postwar era. Moreover, if the informal economy were exclusively a refuge from destitution, two facts would logically follow: First, average income levels among the informally employed would be significantly lower than among workers in formal activities; second, those who found employment in formal activities would never leave voluntarily in order to move into the informal economy. But neither of these predictions is supported by data.

1. The primary purpose of this passage is to

A. compare the economies of developed and underdeveloped countries
B. suggest that economists should develop a new framework for studying the global economy
C. criticize the notion that the informal economy is primarily a Third World phenomenon
D. dispute a widely held view of the relationship between the formal and informal sectors of the world economy
E. argue that workers in the informal economy are almost as well paid as those in the formal economy

The OA is D

2. From the passage, which of the following can be inferred about employment opportunities in the informal economy?

A. Workers employed in the informal economy generally receive much lower wages than do workers in the formal economy
B. Some workers have purposely chosen to work in the informal economy rather than in the formal economy
C. The number of workers employed in the informal economy has remained stable over the last few centuries
D. Employment opportunities in the informal economy will decline as agriculture is displaced by industry
E. The informal economy has created no employment for workers who would otherwise be unemployable

The OA is B

3. The author states which of the following about activities in the informal economy?

A. They are an insignificant aspect of the global economy
B. They provide income for workers who are unemployable in the formal economy
C. They are a consequence of capitalist penetration of less developed economies
D. They thrive mainly in underdeveloped countries in Asia, Africa, and Latin America
E. They consist of such unregulated practices as off-the-books hiring and cash payments

The OA is E