Search results

Grounded in an emergent recognition that those people in formal employment conduct the vast majority of work in the shadow economy, the purpose of this paper is to evaluate for the first time the degree to which shadow work is conducted by those in formal jobs and the characteristics of those in formal employment who participate in the shadow economy.

To do this, the authors report a 2007 survey of participation in the shadow economy involving 26,659 face-to-face interviews conducted in 27 European Union (EU) member states.

The finding is that in the EU, the formally employed undertake a disproportionate share of work in the shadow economy. Analysing the characteristics of the employed most likely to work in the shadow economy, however, it is those who benefit least from the formal economy, namely, younger unmarried men and on lower incomes living in rural areas, working in the construction sector and in small firms.

The outcome is a tentative call for recognition that although people in formal employment conduct the vast majority of work in the shadow economy, these are mostly particular vulnerable and weaker groups of the formally employed. Whether similar findings prevail at other spatial scales and in other global regions now needs investigating.

This survey displays the need for policy not to target the unemployed but particular groups of the formally employed.

The first extensive evaluation of the extent to which shadow work is conducted by those in formal jobs and the characteristics of those in formal employment who participate in the shadow economy.

The purpose of this paper is to evaluate critically the “marginalisation” thesis, which holds that marginalised populations disproportionately participate in undeclared work. Until now, the evidence that participation in undeclared work is higher in marginalised areas (e.g. peripheral rural localities) and marginalised socio-economic groups (e.g. the unemployed, immigrant populations and women) has come from mostly small-scale surveys of particular localities and population groups. There have been no extensive quantitative surveys. Here, the intention is to fill this gap.

To do this, we report a 2007 survey of participation in undeclared work involving 26,659 face-to-face interviews conducted in 27 European Union (EU) member states.

The finding is that the marginalisation thesis is valid when discussing younger people and those living in peripheral rural areas; they are more likely to participate in undeclared work. However, there is no significant association between immigrant populations and participation in undeclared work. Moreover, a reinforcement thesis, which holds that the undeclared economy reinforces the spatial and socio-economic disparities produced by the declared economy, applies when considering those with fewer years in education, women, the unemployed and less affluent European regions; they have lower participation rates than higher educated people, men, the employed and affluent European regions.

The outcome is a call for a more nuanced understanding of the marginalisation thesis as valid for some marginalised populations but not others. Whether similar findings prevail at other spatial scales and in other global regions now needs investigating.

This survey displays that although it is appropriate to target some marginalised populations when tackling undeclared work, this is not valid for others (e.g. immigrant populations, the unemployed, those living in less affluent EU regions).

The first extensive evaluation of whether marginalised populations are more likely to participate in undeclared work.

Conventionally, participation in the informal economy has been explained by viewing citizens as rational economic actors participating when the pay-off is greater than the expected cost of being caught and punished, and thus tackled by raising the sanctions and risks of detection. Given that many citizens do not engage even when the benefits outweigh the costs, a new social actor approach has begun to emerge which explains the informal economy as arising when tax morality is low and seeks to foster commitment to compliance. The purpose of this paper is to provide an evidence-based evaluation of these competing policy approaches.

To do so, the results are reported of 1,306 face-to-face interviews undertaken during 2013 in the UK.

The finding is that raising the sanctions and risks of detection has no significant impact on the likelihood of participation in the informal sector. However, participation in the informal economy is significantly associated with tax morality. Indeed, the only time that increasing the sanctions and risks of detection reduces the level of participation in the informal economy is amongst citizens with very low tax morality.

Rather than continue with the current rational economic actor approach of increasing the penalties and risks of detection, this case study of the UK reveals that a new policy approach is required that seeks to improve tax morality by introducing measures to reduce the acceptability of participating in the informal economy. Whether this is more widely applicable now needs to be tested, given the dominance throughout the world of this punitive rational economic actor approach.

This paper provides evidence supporting a new social actor approach towards explaining and tackling participation in the informal economy.

The purpose of this paper is to advance a new way of explaining and tackling the illegitimate wage practice where employers pay their employees an undeclared (envelope) wage in addition to their formal salary. Drawing upon institutional theory, it is here proposed that envelope wages result from the lack of alignment of a society’s formal institutions (i.e. the codified laws and regulations) with its informal institutions (i.e. the socially shared unwritten understandings which reflect citizens’ norms, values and beliefs).

To evaluate this, data are reported from a 2013 Eurobarometer survey involving 1,738 face-to-face interviews with formal employees in four Baltic countries, namely, Estonia, Latvia, Lithuania and Poland.

The finding is that the greater is the asymmetry between the formal and informal institutions (i.e. the level of disagreement of citizens with the codified laws and regulations of formal institutions), the higher is the propensity to pay envelope wages. This is the case at both the individual- and country levels.

To reduce the prevalence of envelope wages, the resultant argument is that the values of employers and employees need to be aligned with the formal institutions. This requires alterations not only in the informal institutions, using measures such as tax education, awareness raising campaigns and normative appeals, but also changes in formal institutions so as to improve trust in government by fostering greater procedural justice, procedural fairness and redistributive justice.

This is the first paper to apply institutional theory to explaining and tackling envelope wages in the Baltic Sea region.

The purpose of this paper is to advance a new explanation for cross-country variations in the participation of small businesses in the informal economy. Drawing upon institutional theory, it proposes that the greater the asymmetry between the codified laws and regulations of formal institutions (state morality) and the unwritten socially shared rules of informal institutions (civic morality), the greater is the propensity of small businesses to participate in the informal economy. To analyse this, the extent to which small businesses evade payroll taxes by paying employees an undeclared (envelope) wage in addition to their official declared salary is analysed.

To evaluate this, data are reported from a 2013 Eurobarometer survey involving 5,174 face-to-face interviews with employees in small businesses across the 28 member states of the European Union (EU-28).

The finding is that small businesses display a greater propensity to engage in this informal wage practice in countries where there is a higher degree of asymmetry between the codified laws and regulations of formal institutions (state morality) and the unwritten socially shared rules of informal institutions (civic morality). A multi-level logistic regression analysis reveals these to be countries which have lower qualities of governance, lower levels of taxation and intervention in the labour market and less effective social transfer systems.

The major limitation of this study is that it has only examined whether employees in small businesses receive informal wages. Future cross-country surveys should analyse a wider range of ways in which small businesses participate in the informal economy such as under-reporting turnover.

This is the first known analysis of cross-country variations in the participation of small businesses in the informal economy.

The purpose of this paper is to evaluate which groups of the self-employed engage in the informal economy. Until now, self-employed people participating in the informal economy have been predominantly viewed as marginalised populations such as those on a lower income and living in deprived regions (i.e. the “marginalisation thesis”). However, an alternative emergent “reinforcement thesis” conversely views the marginalised self-employed as less likely to do so. Until now, no known studies have evaluated these competing perspectives.

To do this, the author report a 2013 survey conducted across 28 countries involving 1,969 face-to-face interviews with the self-employed about their participation in the informal economy.

Using multilevel mixed-effects logistic regression analysis, the finding is that the marginalisation thesis applies when examining characteristics such as the age, marital status, tax morality, occupation and household financial circumstances of the self-employed engaged in the informal economy. However, when gender and regional variations are analysed, the reinforcement thesis is valid. When characteristics such as the urban-rural divide and educational level are analysed, no evidence is found to support either the marginalisation or reinforcement thesis.

The outcome is a call for a more nuanced understanding of the marginalisation thesis that the self-employed participating in the informal economy are largely marginalised populations.

This is the first extensive evaluation of which self-employed groups participate in the informal economy.

The purpose of this paper is to propose a new way of explaining participation in the informal economy as resulting from the asymmetry between the codified laws and regulations of a society’s formal institutions (government morality) and the norms, values and beliefs of the population that constitute its informal institutions (societal morality). The proposition is that the greater the asymmetry between government morality and societal morality, the greater is the propensity to participate in the informal economy.

To evaluate this institutional asymmetry theory, the results are reported of 1,306 face-to-face interviews conducted during 2013 in the UK.

The finding is a strong correlation between the degree of institutional asymmetry (measured by tax morale) and participation in the informal economy. The lower the tax morale, the greater is the propensity to participate in the informal economy. Using ordered logistic regression analysis, tax morale is not found to significantly vary by, for example, social class, employment status or wealth, but there are significant gender, age and spatial variations with men, younger age groups, rural areas and Scotland displaying significantly lower tax morale than women, older people, urban areas and London.

Rather than continue with the current disincentives policy approach, a new policy approach that reduces the asymmetry between government morality and societal morality is advocated. This requires not only changes in societal morality regarding the acceptability of participating in the informal economy but also changes in how formal institutions operate in order for this to be achieved.

This paper provides a new way of explaining participation in the informal economy and reviews its consequences for understanding and tackling the informal economy in the UK.