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Economics

The Political Economy of Informal Economies in Post-Industrial Cities

Quick fact

In post-industrial cities like Detroit or Manchester, informal work can account for up to 20% of urban GDP, and it is not a remnant of poverty but a direct product of deindustrialization and state withdrawal.

Why this is interesting

You know those street vendors, day laborers, and gig drivers who keep the city running without a formal employment contract? Ever wondered why they exist in the heart of wealthy post-industrial cities?

Read the full explanation

Understanding The Political Economy of Informal Economies in Post-Industrial Cities

Think of a post-industrial city as a once-thriving factory town where most of the factories have closed. The workers who used to have steady jobs are now either retired, moved away, or left without formal employment. The city still needs services—people need groceries, repairs, rides—so a parallel economy emerges. Informal work includes street vending, unregistered childcare, home repair, and gig driving. These activities are not regulated by the state and are often paid in cash. They are survival strategies: the city no longer offers enough formal jobs, so people create their own work. But this informal economy is not chaotic; it has its own rules, networks, and social codes, often based on trust within communities.

A deeper explanation

The political economy of this phenomenon reveals that informality is not accidental but is shaped by state policies and economic structures. When factories close, the labor force becomes surplus—more workers than formal jobs. The state, facing budget constraints, reduces social welfare and enforcement of labor laws. This creates a gray zone where informal work is tolerated—sometimes even encouraged—because it absorbs unemployment and prevents social unrest. But not all informal activities are treated equally: the state may police street vendors in tourist areas to maintain a certain image, while turning a blind eye to home-based work in poorer neighborhoods. This selective enforcement depends on political power and economic interests. Moreover, public services like policing, sanitation, and zoning affect where informal work can thrive. Thus, the informal economy is not a separate, traditional sector but is intrinsically linked to the formal political economy; it is a coping mechanism for the failures of the formal system, and a source of revenue and control for the state.

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