The Informal Economy: Case Studies Within America’s Ethnic Chinese Diaspora

By Claire Chen

The universal status of Chinese food is perhaps the most iconic symbol of Chinese diasporic success. Even three years and five hundred miles out of the house, I can still find the dishes of my childhood when I walk down the streets of Nashville. No doubt you’ve ventured to these same businesses as well to chase that late-night fried rice craving that only Chinese takeout can fix.

But the public-facing businesses catering to the American palate are just the surface of community innovation. The fried rice you trust is made by workers with W-2s in a kitchen with regular inspections. For those with the right social credentials – thanks Mom – trust does not need to be created by regulatory action. I’ve seen thriving unregulated businesses ranging from WeChat groups distributing lunches peddled out of the trunk of a minivan to clandestine haircuts requiring payment in cash. Collectively, they form part of what is known as the informal economy, which the International Monetary Fund describes as “activities that have market value but are not formally registered.” This informal sector is attributed to two main factors: the desire to evade pesky government requirements and the lack of skills needed to participate in the formal economy.

To understand the development of the informal economy within the ethnic Chinese diaspora, it is first necessary to examine its most striking characteristic: language. The spread of business through the social networks of owners is nothing new, so for those determined to eke a living from the fringes of the established economy, it is no surprise that their own social networks are also adjacent to mainstream American society; Chinese-language chat groups and word of mouth passed through immigrant communities work as an alternative structure to support business activities. More importantly, this linguistic gatekeeping functions as an implicit signal of trust. After all, the informal economy is legally gray, and a strong sense of community solidarity not only eliminates the risk of regulatory attention but also provides the support of a group of people who can, in the most literal sense, understand each other. As a second-generation Taiwanese American, I stand both an outsider and an insider within this space, and this unique arrangement gives me the space to describe what I’ve seen and what that means for my community’s future in the United States.

Part 1: Key Observations About the Diasporic Informal Economy

This community-centric approach reveals two key insights into the development of the informal economy. The first is the understanding of why informality exists. The previous discussion on language makes it clear that language forms a major structural barrier to all steps of formal employment. The creation of a new restaurant is an excellent example. Negotiation of retail space necessitates interaction with landlords who may only understand the country’s lingua franca; the process of licensing, while easily accessible through the Tennessee Department of Agriculture’s guidelines for retail food establishments, requires supporting documentation that is found and appears to require completion in English. And though information about taxation is the one area of small business development that is widely available – to the surprise of nobody – it is clear that by and large, navigating America’s formal economy requires a certain level of English-language fluency that some prospective business-owners simply may not possess.

The second is how such informal networks are sustained. Community support, ranging from a group of dedicated friends to densely-populated ethnic enclaves, replaces the security that the formal economy offers; in other words, the target audience of diasporic informal economies is the diaspora itself. My mom and I don’t get haircuts out the back of an auntie’s house because it’s more convenient than Supercuts – or, in true Asian fashion, do-it-yourself haircuts. What is found there, and nowhere else, is the ability to engage directly with the diasporic community through participation in these businesses. The informal economy is thus another mechanism through which community ties are reinforced, explaining their deep impact on the cultural life of the community.

In other words, the motivating factors for diasporic informality tie deeply into the structural differences that differentiate these participants from members of the formal economy. These factors reinforce the defining characteristic of language that distinguishes the diasporic informal economy. However, this discussion reveals a tension that results from this attribute: even though government services are most accessible to English speakers, community spaces are often defined by distinguishing characteristics such as language that serve to enhance community bonds. This conflict is exemplified by the discussion of the integration of diasporic informality into the formal economy.

Part 2: The Future of the Diasporic Informal Economy

The integration of market activities into the formal economy remains a key priority for economists. The World Bank explains that “[w]idespread informality hampers development progress in a variety of ways. It is broadly associated with weaker economic outcomes. Countries with larger informal sectors have lower per-capita incomes, greater poverty, less financial development, and weaker growth in output, investment, and productivity.” Though the United States is a developed economy, the integration of stray sectors into the wider American economy can still capture the benefits of formalization that, according to the International Labour Organization, range from social goods like the reduction of poverty to developmental advantages such as market growth.

As noted previously, the language conflict embodies the frictions associated with transition. The most obvious solution to this question of accessibility is making regulations available in alternative languages. For example, making the documentation required of retail food establishments accessible in Chinese doesn’t mean hitting a translation button. Employees with both the relevant linguistic training and the familiarity with departmental procedure must go through the bureaucratic process of creating translated documents, and crucially, must remain available to process said documentation after these forms are released. Moreover, these records must be available to the wider bureaucratic hierarchy operating in English, meaning that supervisors, who may not have that linguistic capacity, must be updated, while corresponding records must be translated back into English for documentation purposes. The complicated procedure that results from a hypothetical study of a single document makes it evident that the proposal for linguistic accessibility is not as simple as it seems.

Another solution that bypasses this state-heavy approach is the enlistment of other community members who can navigate English-language bureaucracy. This is not a new idea: I’ve known plenty of families whose kids do their taxes and whose friends act as liaison for their relationship with the American financial system. The problem is that this strategy is not sustainable. In due time, kids grow up and move away to do their own taxes someday; likewise, the goodwill of friends is not an infinite resource, and the old adage of mixing business and friends means that this solution may not truly protect everybody.

The logistical barriers associated with these two external solutions means that a true resolution to linguistic obstacles must originate elsewhere. In fact, the only solution that provides the potential to increase long-term language accessibility is the development of English-language learning support, which unlike the previous solutions, targets the development of skills required to integrate with the formal economy. This can take many forms; for example, community centers like libraries can make space for dedicated programming, municipal websites can consolidate resources to find language-learning resources, and local community colleges can provide curriculum geared toward practical applications for language learners. These suggestions all have the added benefit of meaningfully integrating diasporic communities with the wider public, providing cross-cultural opportunities to enhance civic life.

Thus far, all these solutions require the individual learner to actively pursue English-language fluency. But as explained previously, informal economic agents do not actively pursue the skills needed to integrate into the formal economy because the structure of their businesses are already sufficient for their needs. As noted in the second part of the discussion on the development of informal networks, informality functions as a way to reinforce community solidarity as a whole. More importantly, these frameworks can provide an alternative system of benefits found also in the formal economy given the context of immigrants seeking the positive reinforcement of intra-community ties as they operate within the wider world. Informality thus serves as a solution for diasporic communities operating outside of mainstream social structures.

Thus concludes the ultimate reason why informal systems are persistent across diasporic communities: the gaps in government services for immigrant communities mean that the communities themselves step up to meet these needs, a state that is as existentially important for the communities themselves as it is frustrating for the economist and regulatory agents seeking to formalize economic behavior to generate its associated benefits. As such, the question of informality lends itself to no easy answers, especially for communities on the margin, and it remains critical to examine the phenomenon in the context of the communities it serves when creating solutions for development.

By Claire Chen

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