CAIRO (Reuters) - There was little certainty to Fouad Abdel Aziz's existence except for the fact that as a member of Hosni Mubarak's National Democratic Party, he had some protection from rivals trying to muscle in on his business selling sunglasses in a Cairo market.
The complex network of patronage that stretched from Egypt's former president to the vendors of Attaba street market was largely swept away with Mubarak's overthrow in February, and 63-year-old Abdel Aziz is nervous about the future.
He earns 10 to 15 Egyptian pounds ($1.65 to $2.50) a day -- enough for a meal of beans or lentils.
"I have five kids and I really wanted to educate them but I couldn't afford it and they are on drugs now," said Abdel Aziz, who quit school before he was 10. "I dream of a night when I can sleep without having to worry."
One fifth of Egypt's 80 million people live in poverty, according to official figures, and in the short term, the overthrow of Mubarak in February has made life harder for many of them -- political unrest and uncertainty have hit the economy hard, deterring investment and disrupting trade and tourism.
With the economy floundering and formal jobs scarce, more Egyptians are trying to make ends meet in the massive grey economy, which operates outside the tax system and most government regulation.
Many begin by acquiring cheap Chinese-made goods such as toys, women's underwear, shoes or kitchen appliances, and hawking them from carts or tarpaulins spread out on pavements or hung from walls.
Attaba and other markets across Cairo may appear chaotic at first glance, but under Mubarak there was a pecking order that the police would help protect, often in exchange for bribes, traders say. As the number of street vendors has mushroomed since Mubarak's ouster, the police, rebuked by the newcomers, have abandoned their attempts to stem the tide.
Souk Gomaa (Friday Market), under a bridge in the southeast of the capital, was shut last year after a fire weakened the vast structure and the government promised traders a new site.
But police who stood guard by the bridge spanning Cairo's City of the Dead slum left when Mubarak fell, and the market is thriving again, despite fears that the structure could collapse.
The government has promised to bring street vendors under control. But 222,000 Egyptians have been migrating to the capital annually in search of work in recent years, according to state statistics agency CAPMAS, and real jobs are scarce.
Around 7,000 jobs were advertised in national newspapers in July, down 53 percent from a year earlier, the Ministry of Manpower said. Vacancies shown in the national employment bulletin slumped to 4,300 from 30,000.
The government says 11.8 percent of the 26.3 million Egyptians eligible to work did not have jobs in the second quarter of 2011. Experts say that unemployment figure is misleadingly low, because the number estimated as employed include millions struggling in the informal sector.
Metawia Mohamed, a 35-year-old with three children, sells bracelets, bangles and other accessories from his stall in downtown Cairo, earning him around 20 pounds per day. According to official statistics, Mohamed is employed because he works at least one hour per week.
Mohamed said he had almost forgotten that he has a commerce diploma, qualifying him to work as an accountant.
"I am under constant threat that the authorities will confiscate my goods and stand, and I don't have any other source of income. Finding a job is very hard in this country," he said.
Reliable statistics were already a rare commodity during Mubarak's three decades in power; accurately calculating the number employed in the informal sector today is impossible. But analysts estimate that the grey economy employs some 42 percent of the labor force and contributes roughly one third of gross domestic product.
The grey economy ballooned in the 1990s when economic reforms eroded the Socialist-influenced, centralized economy in favor of the private sector. The reforms threw millions out of safe public-sector jobs but the faster growth that followed was lopsided, enriching the privileged but failing to create enough jobs for the poor.
Now, for the short-term at least, Egyptians have neither rapid growth nor more social equality. Economists polled by Reuters expect GDP growth of 1.3 percent in the year to June 2012, down from around 6 percent annually in recent years, which was barely enough to absorb a fast-growing young population into the job market.
"The worse the economic situation, the bigger the informal sector grows. And with the weakening of monitoring authorities, employers are abusing their workers, forcing them to work in tougher conditions with lower wages," said independent economist Abdel Khalek Farouk.
Some 332,000 university graduates enter the labor market each year. Many are cruelly disappointed, ending up as casual labor on building sites and farms.
"Huge numbers of university and technical school graduates don't find jobs and are forced to accept work under any conditions imposed by employers in the informal sector," said Farouk.
An estimated 2.5 million small companies operate in the informal sector. But those employed lack national insurance, health cover or holidays. Businessmen in the sector complain of crackdowns by corrupt officials who, they say, confiscate goods in order to sell them on.
Regular calls for the government to corral unregistered businesses into the formal sector miss the point, say experts. Businesses are unlikely to stay in the formal sector if the conditions there are not attractive to them.
"Integration in the formal economy isn't a goal in itself. If we create a suitable business environment, they will register themselves once they grow," said Alia el-Mahdy, economics professor at Cairo University.
Suggestions include more flexible taxation schemes, arranging offers of credit to encourage businesses to register themselves in order to obtain loans, and using health insurance as a basis to extend social security to workers.
"It is a challenge that needs inventive solutions," said Farouk. But in the post-Mubarak turmoil, with parliamentary elections due between November and next March and a presidential election sometime after that, it is unlikely that the government will come up with coherent policies to address the problem any time soon.
Some grey economy workers are therefore taking matters into their own hands, establishing an independent trade union to pressure the government for better conditions.
Mohamed Abdel Qader, a carpenter, has founded a union for construction and freight workers, miners, street vendors and informal businesses with fewer than 10 workers. He has not yet sought formal recognition for the union, but sees that as no obstacle.
"Like any other trade union, we want to enhance working conditions, wages, put forward views on how to issue work licenses and provide training for our members," he said.
Editing by Andrew Torchia