nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2011‒08‒09
ten papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. What Explains Prevalence of Informal Employment in European Countries: The Role of Labor Institutions, Governance, Immigrants, and Growth By Hazans, Mihails
  2. Informal Workers across Europe: Evidence from 30 Countries By Hazans, Mihails
  3. Informality and protection from health shocks : lessons from Yemen By Cho, Yoonyoung
  4. Assessment of the Labour Market in Serbia By Vladimir Gligorov; Hermine Vidovic; Kosovka Ognjenović
  5. Why does the productivity of education vary across individuals in Egypt ? firm size, gender, and access to technology as sources of heterogeneity in returns to education By Herrera, Santiago; Badr, Karim
  6. The Distributional Impact of the Crisis in Greece By Matsaganis, Manos; Leventi, Chrysa
  7. Determinantes de los impuestos predial e industria y comercio en Cartagena By Augusto Alean Pico; Raul Ernesto Acosta Mesa; Rodolfo Enrique Matos Navas
  8. Tax return as a political statement By Libman, Alexander; Schultz, André; Graeber, Thomas
  9. War and women's work : evidence from the conflict in Nepal By Menon, Nidhiya; Rodgers, Yana van der Meulen
  10. Labour Productivity of Unincorporated Sole Proprietorships and Partnerships: Impact on the Canada-United States Productivity Gap By Baldwin, John R.; Leung, Danny; Rispoli, Luke

  1. By: Hazans, Mihails (University of Latvia)
    Abstract: European Social Survey data on 30 countries, covering years 2004-2009, are used to look into joint institutional [and other macro] determinants of the rates of dependent employment without a contract, informal self-employment, and unemployment (secondary jobs are not accounted for). Consistently with theoretical predictions, quality of business environment has a significant negative impact on prevalence of both types of informal employment. The share of non-contracted employees is negatively affected by perceived quality of public services and is positively related to economic growth. GDP per capita has a positive impact on informality in Europe at large and within Eastern and Southern Europe. Other things equal, the share of non-contracted employees in the labor force across all European countries increases with the minimum-to-average wage ratio, with union density, with the share of first and second generation immigrants, and with income inequality, but falls with stricter employment protection legislation (EPL) and higher tax wedge on labor. Thus it appears that in Europe at large, labor cost effects of EPL and taxes are weaker than their impact via perceptions of job security and law enforcement, along with tax morale and the income effect. Yet the EPL effect on informality is positive (i.e., cost-related) when either Eastern and Southern Europe or Western and Northern Europe are considered separately. Furthermore, within Western and Northern Europe, the minimum wage effect is negative, whilst within Eastern and Southern Europe, the union effect is negative. Various panel data methods are used to confirm the robustness of the results.
    Keywords: labor market institutions, informal employment, immigrants, ethnic minorities
    JEL: J08 J21 J51 J61 K31
    Date: 2011–07
  2. By: Hazans, Mihails (University of Latvia)
    Abstract: The European Social Survey data are used to analyze informal employment at the main job in 30 countries. Overall, informality decreases from South to West to East to North. However, dependent work without contract is more prevalent in Eastern Europe than in the West, except for Ireland, the UK and Austria. Between 2004 and 2009, no cases found when unemployment and dependent informality rates in a country went up together, suggesting that work without contract is pro-cyclical in Europe. Dependent informality rate is inversely related to skills (measured by either schooling or occupation). The low-educated, the young (especially students), the elderly, and persons with disabilities are more likely to work informally, other things equal. In Southern and Western Europe, immigrants from CEE and FSU feature the highest dependent informality rate, whilst in Eastern Europe this group is second after minorities without immigrant background. In Eastern, Southern and part of Western Europe, immigrants not covered by EU free mobility provisions are more likely to work without contracts than otherwise similar natives. We provide evidence that exclusion and discrimination play important role in pushing employees into informality, whilst this seems not to be the case for informal self-employed. Both on average and after controlling for a rich set of individual characteristics, informal employees in all parts of Europe are having the largest financial difficulties among all categories of employed population (yet they fare much better than the unemployed and discouraged), whilst informal self-employed are at least as well off as formal employees.
    Keywords: informal employment, human capital, discrimination, minorities, immigrants
    JEL: J21 J24 J61 J71 O17 O52
    Date: 2011–07
  3. By: Cho, Yoonyoung
    Abstract: The informal sector is generally believed to be more vulnerable to various risks due to limited access to social insurance, but little empirical evidence exists to support this statement. This paper examines the relationship between informality and protection from health risks in Yemen. The formal sector, when defined based on pension coverage, largely overlaps with public employment where the better educated, more experienced, and better informed tend to work. The results indicate that, even after accounting for socio-economic status, water supply and quality conditions, risky behavior patterns, and unobserved heterogeneity, formal sector households have better accessibility and affordability to health service. This may in part explain better health outcomes among formal households, although large heterogeneity across regions (urban/rural) exists. However, the role of the existing health insurance is found to be unclear. The findings reconfirm the importance of policies that promote universal access to health service and a risk pooling avenue delinked from employment types as well as healthy living conditions and lifestyles.
    Keywords: Health Monitoring&Evaluation,Health Systems Development&Reform,Safety Nets and Transfers,Labor Markets,Health Economics&Finance
    Date: 2011–08–01
  4. By: Vladimir Gligorov (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw); Kosovka Ognjenović
    Abstract: In the period after the political changes in the year 2000, GDP growth in Serbia was rather rapid and compares favourably with other transition countries in Southeastern Europe. It was driven mainly by the expansion of services, with industrial production and agriculture basically stagnating over the whole period. The labour market effects were similar to those in other countries going through transition: employment declined in the public sector and increased in the private sector, with the overall number of employed declining and those unemployed increasing, and also with strong increases in the number of pensioners. The Serbian labour market is characterized by low employment and activity rates, particularly for women and young people. This indicates the weaknesses of the secondary educational system in adapting to the needs of the labour market, but also the obsolete skills of the high percentage of long-term unemployed. In general, the educational attainments of the workforce have changed only marginally over recent years. Labour mobility, as everywhere in Europe, is very low in Serbia. By contrast, Serbia’s (outward) migration is very high and remittances constitute an important share of income. Brain drain has become an important issue in recent years though it is hardly a new phenomenon. However, for highly educated people, the relevant labour market is the world labour market. Informal sector employment, which has been traditionally high in Serbia, even increased during the past decade, with a rising share of older workers, better educated persons with secondary education or more, self-employed persons and unpaid family workers. During the current crisis there has been a marked decline in the number of self-employed persons, which is where most informally employed people are to be found. Serbia has not relied on consistent labour market policies to address the low level of employment and high level of unemployment. Some changes are being introduced in the crisis and post-crisis periods, but the effects are uncertain and are yet to be determined in any case. Although spending on passive and active labour market policy measures in Serbia has been growing in the past couple of years, it is still low compared to the EU average but higher than in most other Western Balkan countries. The lion’s share of the available budget is spent on passive measures. An important step in order to improve the efficiency of labour market policy measures was made in 2007, when the administration of health insurance was separated from the NES which absorbed much time and efforts in the past. Transition and the current crisis have led to the development of significant structural problems in the labour markets in Serbia. The policies so far have been inadequate as they have been targeting cyclical rather than structural problems. This needs to be changed in the future with significant improvements in the policy design and the institutional support for implementation.
    Keywords: labour market, wage developments, skill mismatch, informal economy, labour market policies
    JEL: J08 J21 J24 J31 J43 J64
    Date: 2011–05
  5. By: Herrera, Santiago; Badr, Karim
    Abstract: The paper estimates the rates of return to investment in education in Egypt, allowing for multiple sources of heterogeneity across individuals. The paper finds that, in the period 1998-2006, returns to education increased for workers with higher education, but fell for workers with intermediate education levels; the relative wage of illiterate workers also fell in the period. This change can be explained by supply and demand factors. On the supply side, the number workers with intermediate education, as well as illiterate ones, outpaced the growth of other categories joining the labor force during the decade. From the labor demand side, the Egyptian economy experienced a structural transformation by which sectors demanding higher-skilled labor, such as financial intermediation and communications, gained importance to the detriment of agriculture and construction, which demand lower-skilled workers. In Egypt, individuals are sorted into different educational tracks, creating the first source of heterogeneity: those that are sorted into the general secondary-university track have higher returns than those sorted into vocational training. Second, the paper finds that large-firm workers earn higher returns than small-firm workers. Third, females have larger returns to education. Female government workers earn similar wages as private sector female workers, while male workers in the private sector earn a premium of about 20 percent on average. This could lead to higher female reservation wages, which could explain why female unemployment rates are significantly higher than male unemployment rates. Formal workers earn higher rates of return to education than those in the informal sector, which did not happen a decade earlier. And finally, those individuals with access to technology (as proxied by personal computer ownership) have higher returns.
    Keywords: Access&Equity in Basic Education,Teaching and Learning,Education For All,Primary Education,Labor Markets
    Date: 2011–07–01
  6. By: Matsaganis, Manos; Leventi, Chrysa
    Abstract: The severe economic crisis affecting Greece is widely expected to have a significant social impact in terms of greater inequality and increased poverty. We provide an early assessment of whether (and to what extent) this is the case. More specifically, we distinguish between two inter-related factors: on the one hand, the austerity measures taken to reduce fiscal deficits; on the other hand, the wider recession. Using the European tax-benefit model EUROMOD we attempt to quantify the distributional implications of both. With respect to the austerity measures, we focus on the changes introduced in spring 2010 affecting income tax, pension benefits and public sector pay. With respect to the wider recession, we model the effects of rising unemployment and inflation, as well as of lower earnings for self-employed workers and for employees of private firms. In simulating the impact of these changes on the distribution of incomes (and in estimating how the total burden of the crisis is shared across income groups), we take into account tax evasion and benefit non take up. We end by discussing the methodological pitfalls and policy implications of our research.
    Date: 2011–08–02
  7. By: Augusto Alean Pico; Raul Ernesto Acosta Mesa; Rodolfo Enrique Matos Navas
    Abstract: Se analizan los posibles factores que determinan el recaudo del ipu e ica en Cartagena. Con el análisis y la estimación de un modelo de regresión lineal múltiple fueron identificados los factores que explican el recaudo de estos impuestos en el Distrito de Cartagena. Se evidencia que el recaudo del IPU se encuentra explicado por factores como: estrato socioeconómico, años de educación, avalúo catastral, tasa efectiva, ingresos bajos y cantidad de trabajadores informales. El ingreso y las tarifas explican el recaudo del ica en Cartagena en un 52%. Se requiere disponer de mayores registros de información para incorporar al modelo otras variables, con el fin de obtener un modelo robusto para explicar el recaudo del ica.
    Date: 2011–07–21
  8. By: Libman, Alexander; Schultz, André; Graeber, Thomas
    Abstract: The accuracy of a tax return is usually interpreted as an outcome of the tax evasion decision by an individual. However, in non-democratic regimes with predatory blackmail tax systems it is possible that large sums voluntarily reported by influential politicians or businessmen may be used as political statements. By openly acknowledging one's personal income an individual can signal the strength of one's position, or, on the contrary, the submissiveness to the political leadership. In this paper we explore the idea of the tax return as a political statement and test it using a unique dataset of the tax returns filed by the Russian regional governors and the members of their families for the year 2009. Our results conjecture that Russian governors may deliberately file their tax return as a political statement to signal their strength vis-à-vis the central government. --
    Keywords: tax compliance,communication in non-democracies,Russian regions
    JEL: D73 D78 H26 P26
    Date: 2011
  9. By: Menon, Nidhiya; Rodgers, Yana van der Meulen
    Abstract: This paper examines how Nepal's 1996-2006 civil conflict affected women's decisions to engage in employment. Using three waves of the Nepal Demographic and Health Survey, the authors employ a difference-in-difference approach to identify the impact of war on women's employment decisions. The results indicate that as a result of the Maoist-led insurgency, women's employment probabilities were substantially higher in 2001 and 2006 relative to the outbreak of war in 1996. These employment results also hold for self-employment decisions, and they hold for smaller sub-samples that condition on husband's migration status and women's status as widows or household heads. Numerous robustness checks of the difference-in-difference estimates based on alternative empirical methods provide compelling evidence that women's likelihood of employment increased as a consequence of the conflict.
    Keywords: Population Policies,Rural Poverty Reduction,Labor Markets,Regional Economic Development,Gender and Law
    Date: 2011–08–01
  10. By: Baldwin, John R.; Leung, Danny; Rispoli, Luke
    Abstract: This paper asks how the performance of self-employed unincorporated businesses affects the size of the gap in labour productivity between Canada and the United States. To do so, the business sector in each country is divided into unincorporated and corporate businesses, and estimates of labour productivity are generated for each sector. The productivity performance of the unincorporated sector relative to the corporate sector is much lower in Canada than in the United States. As a result, when the unincorporated sector is removed from the estimates for the business sector in each country and only the corporate sectors for the two countries are compared, the gap in the level of productivity between Canada and the United States is reduced. The unincorporated sector consists of both sole proprietorships and partnerships. This paper also investigates the impact of just sole proprietorships on the Canada-United States productivity gap. Sole proprietorships in the two countries more closely resemble one another than do partnerships, as U.S. partnerships are much larger than their Canadian counterparts. When sole proprietorships are removed from the business-sector estimates of each country (allowing a comparison of sole proprietorships to the rest of the business sector, which consists of partnerships and the corporate sector), the gap in labour productivity between Canada and the United States also declines but by only about half as much as when both sole proprietorships and partnerships are removed. The lower productivity of the unincorporated sector (both sole proprietorships and partnerships) accounted for almost the entire productivity gap between Canada and the United States in 1998. Since then, the productivity of the corporate sector in Canada has fallen relative to that of the corporate sector in the United States and the unincorporated sector no longer accounts for the entire gap.
    Keywords: Business performance and ownership, Economic accounts, Business ownership, Productivity accounts, Small and medium-sized businesses, Current conditions
    Date: 2011–07–28

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