Tackling employment in the informal economy: A critical evaluation of the neoliberal policy approach

Abstract

This article evaluates critically the neoliberal perspective that employment in the informal economy is a product of high taxes, public sector corruption and state interference in the free market and that reducing taxes, corruption and the regulatory burden via minimal state intervention is the remedy. Analysing the varying size of the informal economy across 36 developing and transition countries, little or no association is found with higher tax rates, greater levels of corruption and state interference. Instead, employment in the informal economy appears to reduce with higher levels of regulation and state intervention. The theoretical and policy implications are discussed.

Labor Laws and Shadow Economies: A Cross‐National Assessment

“…To the contrary, our findings provide more support for both political economy and institutionalist theories of the informal economy (Littlewood, Rodgers, and Williams, ; Williams and Horodnic, ), as we find that a robust regime of state involvement in the area of labor rights, as well as the strength of state institutions to carry out these regulations, are significantly related to a smaller shadow economy. Along those lines, our study does suggest broader corroboration to Williams (:164) in showing how “higher levels of social protection and bigger government…diminishes the need for marginalized populations to turn to employment in the informal economy.” In terms of policy recommendations, this does suggest that calls for deregulation, particularly in the area of labor rights, may not be a panacea for states seeking to increase the growth and competitiveness of their formal sector. To the contrary, undercutting labor protections may serve to reduce the benefits of formal work and thus push employees into the informal economy.…”

“…However, these prospective “costs” may be offset by benefits that are provided to workers in states with a more robust labor rights regime, including collective bargaining, employment guarantees, and overtime laws. In theoretical terms, it may be the case that a “political economy” approach, which stresses the beneficial nature of many aspects of state intervention, better explains the linkage between labor laws and the shadow economy (Williams, ; see also Williams and Horodnic, ).…”

Tackling enterprise in the informal economy: an introductory overview

“…However, there is growing evidence that decreasing the level of state intervention results not in formalization but quite the opposite, greater levels of informal enterprise (Kus, 2010(Kus, , 2014Williams, 2013bWilliams, , 2014a. In consequence, this way forward is not perhaps viable.…”

Blurring boundaries: informal practices in formal employment in Ireland

“…Finally, there is strong evidence that such practices in Ireland expanded recently after the financial crash of 2008. It could be explained by the immediate need to cut the cost of employment (Freeman and Ogelman ) and also by the ongoing, long‐term flexibilisation and move towards outsourcing and subcontracting (Williams, ). As our study illustrates, informal practices are not diminishing as part of ‘formalisation processes’.…”