Measuring the informal economy at the neighbourhood level
- further information
In over 100 low-income neighbourhoods in the US, the non-profit organization Social Compact has conducted market analyses using its DrillDown technique. DrillDowns build business-oriented profiles using data from over 30 different sources to identify untapped market opportunities often overlooked by more traditional market analysis models. This new neighbourhood data is then disseminated to corporate, government and community leaders with the aim of spurring new investment and improving the lives of low-income residents. Social Compact has consistently found low-income communities to be much larger, safer and with greater buying power than previously acknowledged.
Social Compactís reports, which are available to all on-line, have helped to stimulate significant (re-)investment in low-income areas. In Houston, where Social Compact identified an informal economy worth over US$440 million in the neighbourhoods profiled, findings spurred the redevelopment of the Gulfgate Center, the first new construction in inner-city Houston for 50 years. Today, the Center enjoys 100 per cent occupancy and has created 2,000 jobs. A 246-unit condominium has also been redeveloped in the area. In Harlem, New York City, an informal economy of over US$1 billion was found. Following the publication of Social Compactís report, Fleet Bank (now Bank of America) established two new branches and three ATMs in the neighbourhood, as well as an aggressive and successful small business-lending programme for local residents.
Social Compact uses indicators common to local informal economies to capture the size and value of the production of unregulated (under-the-table payments made to day labourers, for example) and regulated goods and services that may be informally or illegally distributed (clothing, food and electrical goods). Indicators in this model include the ratio of the amount of money spent compared to the amount of declared earnings, the percentage of low-income households, the percentage of foreign-born people in an area, the number of households without a credit history, the method of bill payments and the prevalence of alternative financial institutions.
Social Compact uses a number of skills to ensure the greatest degree of success in each informal economy analysis. These include partnership building, communication, vision and organizational learning. Together, these skills strengthen Social Compactís key steps of building support and collecting accurate data, which serve later to give greater meaning and legitimacy to findings as they are put to use.
Social Compact works in close partnership with the private sector to respond to its demand for better market data on inner-city neighbourhood income. One driver for this demand is a suspicion that the large informal economies in low-income communities are not being captured by traditional market analyses. By listening to the corporate sector and directly addressing their needs, business leaders have become stakeholders in DrillDowns and have been critical to the framework and design of the model. Through partnerships and continual reappraisal, Social Compact has devised a dynamic and flexible model that captures key characteristics of informal economic activity in multiple markets that is formulated by, and with buy-in from, decision makers in the business sector.
In collecting data, Social Compactís informal economy model requires a broad range of inputs and therefore, a number of partnerships. In a typical case, Social Compact will need data from city departments, financial institutions and other private data sources. Social Compact has found that forging partnerships with government economic development agencies at the nascent stages of a project is the best way of engaging with other data providers. There are clear practical benefits to working with the city authorities. Depending on the project/analysis, the public sector may contribute much of the raw data needed. In addition, it may already have long and established relationships with the private sector. Finally, if technical capacity is limited, partnering with universities and other research organizations can offer technical support and academic expertise through GIS and existing research programmes.The strength of the relationships forged in previous stages is often the deciding factor in the ultimate success of the neighbourhood market profile. From its outset, Social Compact has placed great emphasis on building buy-in and support from a broad coalition of decision makers from the public, private and non-profit sectors. This ensures that the informal market study is seen by all parties as a trusted and reliable information tool, which they helped to develop. Many cities, retailers, property developers and community groups have attributed the growing reputation of their neighbourhoods as areas ripe for investment to the DrillDown.
Go back to case studies listing