negative correlation between informality and productivity of if firms in West Africa. In addition, when informality is broken down into different degrees along a continuum, the level of formality and productivity are strongly and positively correlated. Mourji (2010) found a similar correlation in Morocco, while Backiny-Yetna (2013) found increasing degrees of formality to be correlated with higher tax payments in Niger.

As a corollary to the productivity differential, the relationship between informality and the agents’ salaries has also been studied. Because of the productivity difference in favour of the formal sector, many studies conclude there is a higher salary level in the formal sector than for the informal sector. For example, Gatti et al (2011) estimate a formal sector wage premium of 10 to 50 percent in MNA, varying by country and age group of workers. However, average profits in the informal sector are in turn higher than in agriculture by at least 50% in the majority of countries (Fox and Gall, 2008).

# **II. Concept and definition**

A central question in the study of the informal sector is its definition: what is informal and what is not? Most of the responses in the literature are working definitions, and refer to a spectrum of firm characteristics defining different degrees of informality. One issue facing researchers is that for several variables of interest -- the informal sector’s weight in the national economy, its role in economic growth and productivity, the impact of the investment climate -- the estimations obtained from one study to another can vary greatly depending on the definition used (Mbaye and Benjamin, 2014). A second issue concerns the attempt to define criteria that are relevant to the realities of both developed and developing countries, which actually have strong differences.

## **A. Nature of non-agricultural informal activity**

The most common criteria used to define the informal sector are size of the activity, registration with a government agency, and keeping regular accounts.

### **The size criteria**

The size criteria mostly comes from the approach of the International Labor Organization (ILO), which defines an informal firm as an unregistered firm where the owner is an individual or a household whose capital is not separable from that of the firm and for which there is not reliable accounting that could permit retracing the operations of the firm (ILO, 2002). The ILO’s approach, however, is not without problems (see Afristat 1997):

- It defines only the upper bound of informal activities’ size at 10 and leaves countries the job of clarifying the actual size in national surveys on the informal sector.  This allows a very large variety of choice by country in the threshold used.

- The inclusion or not of agriculture in informal sector activities is also left to the countries’ discretion. The same is true of the inclusion of unpaid domestic workers, persons with secondary employment in the informal sector, rural areas, and whether a minimal age is taken into account.

All of this renders statistics on the informal sector so heterogeneous in the manner they were collected that comparisons among them at the international level are difficult.

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