Services industries and the informal economy: an introduction

A recent study reveals that 61.2% of the global workforce aged 15 and over are in the informal economy, and that 47.2% of all employment in the service industries (ILO, 2018). Despite this, there has been very little written on service industries and the informal economy. Instead, the vast bulk of literature on service industries has focused upon the formal economy. To ignore this large segment of the totality of services and workers operating in the informal economy is a misnomer. To do so is to disregard nearly half of the workforce employed in the service industries globally.

Reflecting the long tradition of this journal in pursuing innovative and cutting-edge research that drives the research agenda on service industries, the Service Industries Journal has commissioned a special issue on the theme of ‘Service Industries and the Informal Economy’. The aim of this editorial introduction is to provide a brief synopsis of the articles published which evaluate not only the extent and character of participation in the informal economy in the service industries but also the factors significantly associated with informality in the service industries as well as the challenges posed by the existence of such endeavour. Reflecting the studies in this special issue, this editorial gives special emphasis to the critical role of individual characteristics, country contexts, institutions, and demand- as well as supply-side issues required to achieve a better understanding of informality in the service industries across the globe.

The studies address the extent to which, and how, the informal economy plays a role in the provision of services (e.g. health, transport, financial and tourism sectors), the characteristics of such informal sector provision, the motives of suppliers (supply-side) and customers/buyers (demand-side), and what might be done by public policy makers. Across the advanced, transition and developing economies, there is recognition that the paid and unpaid informal economy has far from disappeared. Take, for example, the household services sector. Not only does the unpaid and paid informal economy remain a prominent means of providing routine domestic services (e.g. household cleaning, caring) but also a principal means by which home repair, maintenance and improvement is undertaken. This is reflected in the persistence of not only do-it-yourself activity but also reliance on paid informal work in the provision of home repair, improvement and maintenance services across the world. There is also recognition that there is a growing trend to outsource household services (Carbonnier & Morel, 2015), and that there is a need to understand the barriers to outsourcing household services to the formal economy and to the gender implications of such outsourcing of domestic services (Windebank & Martinez-Perez, 2018).

There is also a need for greater attention to be given to the extent and nature of paid informal work in the service industries, or what is also known as the shadow economy, underground sector and undeclared work. Little is known about the size of the informal economy either across the service sector as a whole, or in particular service industries, either globally, in particular global regions, or nations. Neither is much known about the characteristics of the informal economy in particular service industries. There is nevertheless recognition that the informal economy might play a major role in the hospitality and tourism sectors, retailing and transport services, and perhaps even a growing role, especially with the advent of the sharing economy which provides an opportunity for informal sector providers to replace formal sector service provision. There is thus a pressing need to understand this issue.

The paper by Karabchuk and Zabirova (2018) starts to fill this gap by providing an analysis of informal employment in the service and non-service industries in Russia using the labour force survey data covering the period 2010–2015. The econometric findings show that the participants in the informal sector in the service industries are predominantly male, older and individuals living in urban areas. Ekici and Besim (2018) and Kahyalar, Ouattara, Fethi, and Katircioglu (2018) estimate the wage gap between informal and formal employees in Cyprus and Turkey labour markets respectively. Accounting for potential endogeneity of registration status which is used to classify individuals either as informal or formal employees, the study on Cyprus finds a wider wage gap between informal and formal workers for service industry employees which is as high as 70%. Similarly, the study on Turkey reveals the presence of a wage gap. As key drivers, the studies consistently identify education, skills and experience as the main drivers pay gap between informal and formal sectors of the economies in question. The extent of the wage penalty suggests the need for regulation and the importance of investment in education/skills to improve the situation in future.

The article by Littlewood et al. (2018) focuses on transactional exchanges with the informal sector. In so doing, it is one of the very few studies that draws our attention to the need to consider demand-side issues as opposed to the burgeoning literature on the supply side. Based on quantitative data from three South Eastern European countries, the study provides interesting insights into questions such as who purchases goods and services from the informal economy, why, and to what extent there are variations according to demographic, socio-economic and geographic dimensions. Within the context of a growth of informal sector activity in the provision of goods and services, Venter de Villiers et al. (2017) provide evidence on flea market loyalty among millennial consumers by investigating the influence of market location, product assortment and market experience. The study reiterates the significant contribution of the proliferation of the global flea market sector for the prevalence of informality.

Another demand-side study of the use of informality to acquire services by Horodnic and Williams (2018) underscores the importance of institutional asymmetry in determining whether there are informal payments made in the health services sector for acquiring health services. This paper makes an important theoretical contribution by identifying the mismatch between formal rules and regulations, and unwritten rules/norms of society, as the cause for the bribes and other corrupt payments individuals must make to obtain health sector services. The empirical findings imply a call for better governance of the health services sector in Southern Europe. In a related study, Williams and Horodnic (2018) evaluate unregistered employment in 35 European countries by focusing on its prevalence and distribution. The findings reveal that unregistered work is prevalent among women, migrants, young people, those with low level of education, employment in small business and the service sector such as the hospitality sub-sector. Imamoğlu, Katircioğlu, and Payaslioğlu (2018) investigate the spillover effects of the financial services sector development on the size of informal economic activity in 20 countries of the European Union (EU). The results from this cross-country panel data analysis display a non-linear (i.e. bell-shaped) relationship between financial services and the preponderance of informal economic activity. This suggests that at initial levels of financial development, informal economic activity increases only to decline after a certain threshold is reached.

Damayanti, Scott, and Ruhanen (2018) provide qualitative evidence from Indonesia on the importance of the tourisms sector for the livelihood and welfare of many informal service providers. The study draws attention to the mix of cooperation and competition strategies of interaction adopted by actors in the informal and formal sectors. The authors provide suggestions for how informal economy actors can manage public spaces to enhance their livelihoods. Using a mixed methods approach, Dube (2018) provides an interesting insight on presumptive taxes of taxi service/transport operators in Zimbabwe. This study brings to the fore how the inherent design problems with presumptive taxes, coupled with institutional failures (e.g. corrupt police who themselves own sometimes the running the tax services), lead to a high level of tax evasion, lack of equity and efficiency in service provision.

Finally, we draw on two studies on domestic service provision in contrasting settings. The study by Windebank and Martinez-Perez (2018) examines the division of domestic labour within UK households and the gendered dimension of the outsourcing of household services. The study finds no support for the view that the use of paid domestic services is more likely in couples where women take on the greater share of remaining unpaid domestic labour. The results by the authors suggest the need to look more deeply at the various expressions of a ‘new gender equilibrium’ in terms of how domestic service tasks are shared between household members and others, and the extent to which these configurations can be viewed as ways of ‘doing gender’ differently. In contrast, the study on Ethiopia by Kedir and Rodgers (2018) looks at the same neglected aspect of informal employment in service provision – domestic work. The informal entrepreneurship literature mainly focuses on ‘visible’ participants in informal sector activities that encompass sales and production without registration (e.g. street vendors). In addition, existing studies on domestic services focus upon transnational or migrant domestic workers. This research contributes to a variety of strands of interdisciplinary literature on informal employment by making domestic workers ‘visible’ within a given national border through an analysis of quantitative household survey data collected over a ten-year period from 1994 to 2004 from Ethiopia. The authors extend the definition of domestic work by adopting a broader definition which includes unpaid domestic workers unlike the conventional definition of domestic work by ILO that exclusively focuses only on waged domestic work. The findings have policy implications and relevance to growing recent literature on decent work and women’s economic empowerment. The study concludes by making a case for the protection of the rights and welfare of domestic workers by drawing attention to the complex issues that concern legal, socio-cultural, economic and employment relations.

The collection of articles in this special issue, in sum, provides a useful starting point to display the range of research that can be conducted on the role of the informal economy in the provision of services and presents some key research challenges, such as the lack of data available on this type of service provision. Although the studies assembled here have a wide geographical coverage, much more research is required to cover these topics in other regions of the world. So too is there a need for a wide range of disciplinary approaches and methods, as displayed here by the multi-disciplinary insights that use qualitative methods as well as quantitative micro- and macro-level studies on sectoral, national and cross-country data sets. The findings will hopefully start to unravel the role of the informal economy in service provision and encourage much more research on this issue. If it does so, one of the intentions of this special issue will have been fulfilled. If it also promotes greater debate on what policy approaches should be adopted and encourages institutional mechanisms to be designed to promote effective governance and reduce the incidence of informality, then it will have fulfilled its wider intention.

Disclosure statement

No potential conflict of interest was reported by the authors.

ORCID

Colin Williams http://orcid.org/0000-0002-3610-1933