eli5 How can a country’s GDP per Capita be measured if many of the people’s income isn’t accounted for?



I’m from Pakistan and here many people work and earn via jobs that aren’t registered in any sort of tax network.

An example is my local fruits and vegetable vendor. This guy steals electricity off the grid for 2 lightbulbs that he has on above his cart and sells his vegetables from there and does every transaction through cash and though this is just 1 example there are millions of people who work these kinds of jobs whether it be a woman who’s a maid or a kid who works at a cafe serving tea.

The question is how are these people’s incomes accounted for? Aren’t they technically counted as unemployed people with no income even though they’re earning at least enough to survive.

In: 0

These are often called black market or grey market activities, or sometimes *non-market activities* which also incorporates more informal stuff like babysitting, volunteer work, cash jobs, etc.

They are not counted in GDP.

That is by design. GDP is not a perfect figure, nor is it meant to be. Its instead a well defined, easy to calculate method of comparison. We use the same metrics for everyone, always, so we always know exactly what the comparison is and just as importantly, what it is NOT comparing and NOT including.

Places with more activity in grey markets and such may show a lower GDP than others that have more formalized markets, as the grey market transaction never get included. The developing world often has a lot of stuff that never gets allocated into GDP and thats fine, economists who use these figures understand that these places will show a lower GDP. Often moving to more formalized markets is however a sign of development, so this will also be looked at in GDP, such as did formerly cash only or grey market type activity start moving to more formal now and can be included?