Explaining and tackling the informal economy: a dual informal labour market approach
| Published date | 06 August 2018 |
| Date | 06 August 2018 |
| Pages | 889-902 |
| DOI | https://doi.org/10.1108/ER-04-2017-0085 |
| Author | Colin Charles Williams,Slavko Bezeredi |
| Subject Matter | HR & organizational behaviour,Industrial/labour relations,Employment law |
Explaining and tackling the
informal economy: a dual
informal labour market approach
Colin Charles Williams
Management School, University of Sheffield, Sheffield, UK, and
Slavko Bezeredi
Institute of Public Finance, Zagreb, Croatia
Abstract
Purpose –To transcend the long-standing debate regarding whether workers are driven into the informal
economy by either their involuntary “exclusion”or voluntary “exit”from the formal economy, the purpose of
this paper is to propose and evaluate the existence of a dual informal labour market composed of an
exit-driven “upper tier”and an exclusion-driven “lower-tier”of informal workers, and to explore its policy
implications.
Design/methodology/approach –To do so, data are reported from a 2015 surveyof the informal economy
conductedin South-EastEurope involving6,019 face-to-faceinterviews in Bulgaria,Croatia and FYRMacedonia.
Findings –Identifying a dual informal labour market with three exit-driven informal workers for every
exclusion-driven informal worker, a multinomial logit regression analysis reveals that, compared to the
exclusion-driven “lower tier”, the exit-driven “upper tier”is significantly more likely to be populated by the
formally employed, retired and those not struggling financially. Participation is not affected by the perceived
severity of penalties and likely risks of detection, but relative to those in the exclusion-driven “lower tier”,
there is a significant correlation between those doing so for exit rationales and their lack of both horizontal
trust and vertical trust in formal institutions.
Practical implications –The outcome is a call to transcend the conventional deterrence approach of
increasing the penalties and risks of detection. Instead, to tackle those driven by exit rationales, tackling both
the lack of horizontal trust that other citizens are operating in a compliant manner and the lack of vertical
trust in formal institutions is advocated. To tackle exclusion-driven informal workers, meanwhile, a focus
upon the macro-level economic and social conditions which lead to their participation is required.
Originality/value –This is the first paper to empirically evaluate the existence of a dual informal labour
market and to evaluate its policy implications.
Keywords Labour market, Employee relations, Undeclared work, Informal economy, Dual economy,
South-East Europe
Paper type Research paper
Introduction
During thetwentieth century, the informal economywas widely portrayed as a residual sector
that was disappearing as economies modernised.However, there is today recognition that the
informal economypersists, with 60 per cent of the global workforce having their main job in
this realm ( Jütting and Laiglesia, 2009). To ex plain participation in the informal economy,
scholars have adopted either a structuralist theoretical perspective that portrays workers as
involved in the informal economy due to their “exclusion”from the formal economy and
state benefits (Davis, 2006; Gallin, 2001; Taiwo, 2013), or a view that informal workers
voluntarily “exit”the formal economy, with neo-liberals representing this as a rational
economic choice (De Soto, 1989, 2001; Maloney, 2004; Perry and Maloney, 2007) and
Employee Relations
Vol. 40 No. 5, 2018
pp. 889-902
© Emerald PublishingLimited
0142-5455
DOI 10.1108/ER-04-2017-0085
Received 17 April 2017
Revised 23 December 2017
Accepted 2 February 2018
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0142-5455.htm
This paper is an output of the European Commission’s Framework 7 Industry-Academia Partnerships
Programme (IAPP) Grant No. 611259 entitled “Out of the shadows: developing capacities and
capabilities for tackling undeclared work in Bulgaria, Croatia and FYR Macedonia”(GREY). The
authors would like to thank the funders for providing the financial support to enable this to be written.
The usual disclaimers apply.
889
A dual
informal
labour market
approach
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