Drawing upon multiple data sources, we document a rapid, unprecedented rise in
informal employment in urban China since the mid-1990s. By 2005, 10 percent of urban
workers were registered as self-employed, and another 36 percent were undocumented,
neither reported by employers nor self-registered. We provide evidence that many of
these “missing” workers were likely to be employed in the private sector and in the
service sector. Most migrant workers are employed informally, but a significant number
of urban permanent residents are also employed informally. Increasing informal
employment expands work opportunities but creates challenges for the provision of social
insurance and worker protections.