Across both advanced and developing economies, a growing share of economic life takes place outside the ledgers that policymakers use to see it. This paper examines the structural divergence between registered (formal) and unregistered (informal) economies and argues that this divergence, rather than any single tax loophole or transfer failure, is a principal driver of the wealth gap that official statistics persistently understate. Drawing on labour-market data from the International Labour Organization, enterprise-census research on India's "missing middle" of firms, and recent long-run inequality series constructed from tax, wealth and survey data, the paper shows that roughly 58 per cent of the world's workforce, and by some estimates closer to 90 per cent of India's, is informally employed, disconnected from social insurance, formal credit and the statistical instruments used to design welfare policy. The literature review synthesizes four strands of scholarship: dual-economy theory, the structuralist and legalist accounts of informality, enterprise-size research, and the emerging critique of inequality metrics such as the Ginny coefficient. The paper then develops a conceptual framework describing how formal-informal divergence compounds wealth concentration through four channels: differential access to credit and capital, exclusion from social protection, weak enforcement of labour standards, and the statistical invisibility of informal wealth and income. It concludes that policy instruments built around registration, taxation records and payroll data will systematically miss the population most exposed to precarity, and it proposes a research and policy agenda oriented around non-registration-dependent identification, asset-based social protection and revised inequality metrics that incorporate informal-sector data.

Keywords

informal economy; formal-informal divergence; wealth inequality; enterprise informality; labour market dualism; social protection policy; India; Ginny coefficient