Dynamics of Formality and Informality: Examining and Resolving Tensions

The formality-informality dynamic represents an interesting yet underexplored tension in the SME employment relationship. Much HRM research plays formality and informality off against each other, where the former is seen a progressive and natural and the latter is dismissed as backward or deficient. Informality is considered an inevitable consequence of a lack of formality and a direct function of scale, rather than as a legitimate approach in its own right. This chapter explores this tension, arguing that HRM research, by definition, must acknowledge the operation of degrees of (in)formality in all types of firms if it is to capture the reality of workplace relations. This emphasises the importance of understanding the logic underpinning the practices in use by paying greater attention to issues of context. We suggest that formal and informal HRM can be simultaneously complementary and substitutive within SMEs. However, current understanding and operationalisation of informality needs to be more nuanced and considered if this feature of SMEs is to be accommodated and appropriately researched. The result is a research agenda to further progress our understanding of the dynamics of informality and its relationship to formality.