Explaining Cross-National Variations in the Informalisation of Employment

ABSTRACT

The aim of this paper is to better understand cross-national variations in the informalisation of employment by evaluating critically three contrasting explanations which variously represent informal employment as more prevalent in: poorer under-developed economies (modernisation thesis); societies with high taxes, corruption and state interference in the free market (neo-liberal thesis) and societies with inadequate levels of state intervention to protect workers (political economy thesis). To evaluate these rival explanations, the relationship between the variable informalisation of employment in 10 Central and East European countries, measured using data from a 2007 Eurobarometer cross-national survey involving 5769 face-to-face interviews, and their broader work and welfare regimes are analysed. The finding is that wealthier, less corrupt and more equal societies and those possessing higher levels of taxation, social protection and effective redistribution via social transfers are significantly more likely to have lower levels of informalisation. No evidence is thus found to support the neo-liberal tenets that the informalisation of employment results from high taxes and too much state interference in the free market but evidence is found to positively confirm the modernisation and political economy theses as explanations for the cross-national variations in the informalisation of employment. The paper concludes by discussing the tentative theoretical and policy implications of these findings and calling for further evaluation of their wider validity both longitudinally and across other global regions.

Keywords:

• informal sector
• shadow economy
• undeclared work
• corruption
• tax evasion
• Central and Eastern Europe

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No potential conflict of interest was reported by the author.

Additional information

Notes on contributors

Colin C. Williams

Colin C. Williams is Professor of Public Policy in the Management School at the University of Sheffield in the UK. His research interests include the informal economy, work organisation and the future of work. His recent books include The Role of Informal Economies in Post-Soviet Societies (2013, Routledge), The Shadow Economy (2013, Institute of Economic Affairs), Informal Work in Developed Nations (2010, Routledge), The Hidden Enterprise Culture (2006, Edward Elgar), and Cash-in-Hand Work (2004, Palgrave Macmillan).