Explaining and tackling unregistered employment: evidence from an employers’ survey

Abstract

When explaining and tackling employers participating in the informal economy, they have been conventionally viewed as rational economic actors who engage when the benefits outweigh the costs, and thus their participation is deterred by increasing the sanctions and/or risks of detection. An emergent social actor approach, however, has explained employers as engaging in the informal economy when there is a lack of vertical trust (i.e., their norms, values and beliefs are not in symmetry with the laws and regulations) and horizontal trust (i.e., they believe many others are being non-compliant). The aim of this paper is to evaluate these competing perspectives by reporting a 2015 survey of 450 employers in FYR Macedonia. The finding is that although there is no association between employers using unregistered workers and the perceived level of penalties and risks of detection, there is a strong significant association with both the level of vertical and horizontal trust. Those whose beliefs do not align with the laws and regulations display a significantly greater likelihood of employing unregistered workers, as do those who perceive a larger proportion of the population to be engaged in the informal economy. The theoretical and policy implications are then discussed.

Exploring the Demand-Side of the Informal Economy during the COVID-19 Restrictions: Lessons from Iași, Romania

“…These results are in line with previous studies stating that failures of the formal economy, pictured as issues with speed, quality and availability, lead consumers to involve in the informal economy [19,21,45].…”

“…Most of the literature on the informal economy investigates the supply side, focusing on how many people work in the informal economy, who does so and/or the motives for working in the informal economy [7,20,[31][32][33][34][35][36][37][38][39][40][41][42][43][44][45][46][47]. Little research has investigated the demand side of the informal economy, especially on the motives for purchasing undeclared goods and services.…”

“…There has been a long-standing assumption that the explanation of lower costs is the most relevant motive for purchasing from the informal economy [19,48]. In recent years, however, various studies have revealed other explanations, such as the social actor rationales and the formal economy failure motives [12,[18][19][20][21][22][23]28,29,42,45,[49][50][51][52][53][54][55]. These theoretical explanations are now described in turn.…”

“…Previous research has revealed that institutions also may drive consumers to purchase from the informal market, explained by failures of the formal institutions (i.e., instability, uncertainty, various weaknesses, inefficiencies or resource misallocations) and by norms, values and beliefs describing the acceptability of such behaviour (i.e., informal institutions) [42,53]. As such, shortcomings of the formal economy may include speed, quality or lack of availability of the product on the formal market [19,21,45]. Meanwhile, the asymmetry between the formal and informal institutions on the demand-side of the informal economy is associated with tax morale [12,18,[20][21][22]28,29] or the level of horizontal trust [20].…”

Explaining the cash-in-hand consumer culture in the European home repairs and renovations sector

“…Until now, the vast majority of studies have focused upon the supply-side examining employers and workers participation in undeclared work. These studies examine the types of work conducted (ILO, 2018; Williams, 2014), the demographic and socio-economic characteristics of informal workers and businesses (ILO, 2018; OECD, 2017; Williams and Bezeredi, 2019; Williams and Yang, 2018; World Bank, 2019), and their motives for participating in undeclared work (Maloney, 2004; Shahid et al , 2019; Williams, 2019; World Bank, 2019). Much less attention has been given to the demand-side.…”