Informal employment in advanced economies

International Journal of Manpower

ISSN: 0143-7720

Article publication date: 1 August 2006



Williams, C.C. (2006), "Informal employment in advanced economies", International Journal of Manpower, Vol. 27 No. 6.



Emerald Group Publishing Limited

Copyright © 2006, Emerald Group Publishing Limited

Informal employment in advanced economies

Informal employment is an issue that has gradually risen up the public policy agenda throughout the advanced economies during the past decade or so. Defined as “the paid production and sale of goods and services that are unregistered by, or hidden from, the state for tax, social security and/or labour law purposes but which are legal in all other respects” (Williams and Windebank, 1998, p. 4), there is now a growing recognition that this sphere is not dwindling in importance as economies develop but instead, that quite the opposite appears to be the case. There appears to be a growth, not decline in the magnitude of informal employment in advanced economies.

This recognition that informal employment is far from some vestige of a pre-capitalist past that is weak, peripheral, superfluous and dwindling, but is a strong and growing part of advanced economies, has resulted in recent years in a growing interest in such work from both academics and public policy-makers. This interest has resulted in several issues being analysed. First of all, there have been attempts to measure the changing size of this sphere, second, greater attention has been paid to understanding the contemporary character of informal employment and third and finally, questions have been asked about what needs to be done about such work. This special issue contains cutting-edge papers that deal with one or more of these three issues. These papers not only provide the reader with key insights into the nature of contemporary research on informal employment but also advance the study of informal employment in significant ways.

Starting with the issue of measuring the magnitude of informal employment, two techniques have been conventionally used. On the one hand, direct survey techniques have been employed. As the papers in this volume by Bàculo as well as Williams and Windebank display, these have traditionally been conducted, due to a lack of resources to fund large-scale surveys, on a local level using relatively small population samples. As such, great concerns have been displayed about whether they are more widely representative as well as whether respondents are always entirely honest when answering questions posed by interviewers. Although some of these problems with these direct survey techniques looks likely to be tackled in the immediate future in that the European Commission are currently evaluating the feasibility of conducting a large-scale direct survey of informal employment in all European Union nations, for the moment, attention has to turn to other methods to gain any understanding of the overall magnitude of informal employment in advanced economies.

On the other hand, that is, indirect measurement methods can be employed to measure the amount of informal employment in advanced economies. These tend to use proxy indicators of informal employment to measure its size. In the paper in this special issue by Fethi et al., the full range of these indirect measurement methods are first of all reviewed, covering both the monetary and non-monetary methods, and the evolution of thought charted on estimating the volume of informal employment using such techniques. Having done this, and to show how these techniques can be put into operation, the second half of their paper then employs a number of these techniques, namely the employment discrepancy, simple currency ratio, transaction and currency demand approaches, to measure the magnitude of informal employment in Cyprus over the period 1960-2003 and to compare it with measures of the magnitude of informal employment in other European Union nations. What is so useful about this paper, besides the fact that it provides the first assessment of the magnitude of informal employment in Cyprus, is that this is also one of the first papers to reveal so directly how different indirect techniques produce remarkably different results for the same place, displaying the reason why it is so necessary to understand the methodology underpinning different “headline” figures concerning its size.

Besides concerns about how to measure the overall volume of informal employment in advanced economies, the two additional issues highlighted above that have been the focus of attention concern the character of informal employment and what needs to be done about such work. The remaining papers in this issue all significantly advance knowledge on one or more of these issues and in doing so, display the cutting-edge understanding of not only the anatomy of informal employment but also thought in public policy regarding this sphere.

Williams and Windebank, in their review of the evolution of thought regarding the character of informal employment display not only the shift in discourse on informal employment in both academic and public policy circles away from a sweatshop view of low-paid exploitative work conducted by off-the-books employees and towards a re-conceptualisation of those engaged in informal employment as a hidden enterprise culture, but also start to unravel some of the implications for public policy of such a re-reading. They reveal that continuing with the conventional policy approach in advanced economies of deterrence will result in western governments stifling on the one hand precisely the enterprise culture that with another hand they are seeking to nurture. For them, therefore, the argument is that conventional deterrents (sticks) need to be combined with a range of incentives (carrots) to enable informal entrepreneurs to make the transition to the formal economy. To facilitate the emergence of this new public policy approach, they then evaluate a wide range of policy experiments with enabling initiatives used in various advanced economies so as to facilitate such a move towards an enabling policy approach.

Similarly, Bàculo in her paper on informal employment in southern Italy provides a deep insight into not only the character of informal employment in this country but also a detailed evaluation of a number of public policy experiments by somebody deeply involved on a daily level with these policy initiatives. Reiterating in the context of Italy that those involved in informal employment represent a hidden enterprise culture that needs to be harnessed, she evaluates in some depth both the regularization campaign that the Italian government has pursued in the past few years along with the CUORE initiative which represents one of the few examples of a dedicated transition service that seeks to help informal entrepreneurs make the transition from the informal to the formal realm. What stands out from her analysis of the Italian situation is not only the need for a multi-dimensional approach if informal employment is to be tackled but also the complexities involved in attempting to provide a formalisation service to help individual entrepreneurs transfer their activities into the formal economy.

The paper by Harney, meanwhile, continues in this same vein of unpacking the multi-dimensional character of informal employment. Taking as accepted the entrepreneurship apparent amongst the migrants he studies, what is so useful about this case study of migrant workers in Naples is that it begins to unravel the way in which a group of precarious migrants working at the interface of the formal and informal economies display many of the characteristics usually associated with knowledge work and knowledge workers. Until now, however, such precarious migrants have been excluded from discussions of the knowledge economy. The important point raised by this paper, therefore, is that there is a need to expand the scope of what is considered the knowledge economy and the composition of knowledge workers so as to incorporate such migrants. Perhaps even more importantly, as one of the first known papers to begin to explore the relationship between the knowledge economy, immigration and the informal economy, it provides a useful insight of how much there is to be gained from pursuing further research on the relationship between knowledge work and the informal economy.

In the final paper in this special issue, Marlow addresses an increasingly important aspect of labour policy in advanced economies. Documenting how the encouragement of self-employment throughout the advanced economies has been used as a policy solution to social exclusion, she investigates the implications for one particular group that has been the focus of policy attention, namely benefit-dependent lone mothers, who have been encouraged to enter self-employment to escape disadvantage. Her argument is that pursuing this option of self-employment is not only limited in terms of meeting their economic needs but in fact encourages participation in informal employment practices. This is because when such women enter self employment their businesses tend to be very small scale and located within crowded sectors of lower order services. Given their need for flexibility, these women are more likely to manage their businesses on a part-time basis and from within the home. Such operating profiles thus tend to result in participation in informal employment.

In sum, all of these papers in this special issue seek to progress knowledge in relation to one or more of the above mentioned three dominant themes with regard to the study of informal employment in advanced economies. If these papers either individually or as a collective whole therefore stimulate more discussion and debate on the way forward regarding its measurement, understanding the character of informal employment and/or the formulation of public policy, then this special issue will have served its purpose. I hope that the papers that follow stimulate your interest in this important phenomenon that pervades the labour market in all advanced economies and appears to be encroaching ever wider and deeper into economic life.

Colin C. WilliamsSchool of Management, University of Sheffield, Sheffield, UK


Williams, C.C. and Windebank, J. (1998), Informal Employment in Advanced Economies: Implications for Work and Welfare, Routledge, London

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