nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2011‒08‒22
three papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Enforcement of Labor Regulation and Informality By Almeida, Rita K.; Carneiro, Pedro
  2. The Relationship Between Illicit Coca Production and Formal Economic Activity in Peru By Concha Verdugo Yepes; Peter Pedroni
  3. Analysing drivers of and barriers to the sustainable development: hidden economy and hidden migration By Albu, Lucian-Liviu; Ghizdeanu, Ion; Iorgulescu, Raluca

  1. By: Almeida, Rita K. (World Bank); Carneiro, Pedro (University College London)
    Abstract: Enforcement of labor regulations in the formal sector may drive workers to informality because they increase the costs of formal labor. But better compliance with mandated benefits makes it attractive to be a formal employee. We show that, in locations with frequent inspections workers pay for mandated benefits by receiving lower wages. Wage rigidity prevents downward adjustment at the bottom of the wage distribution. As a result, lower paid formal sector jobs become attractive to some informal workers, inducing them to want to move to the formal sector.
    Keywords: informality, labor regulation
    JEL: J2 J3
    Date: 2011–08
  2. By: Concha Verdugo Yepes; Peter Pedroni
    Abstract: This paper investigates the relationship between unrecorded economic activity associated with the production of illicit coca and formally recorded economic activity in Peru. It does so by attempting to construct new regional level estimates for coca production and by implementing recently developed panel time series methods that are robust to regional heterogeneity and unobserved regional inter-dependencies. The paper finds that on balance illicit coca production crowds out formal sector production at the regional level, regardless of whether unanticipated changes occur nationally or regionally. However, total output nevertheless increases, since formal sector production is crowded out less than one for one.
    Date: 2011–08–01
  3. By: Albu, Lucian-Liviu; Ghizdeanu, Ion; Iorgulescu, Raluca
    Abstract: The actual global crisis seems to influence negatively the sustainable development in EU countries. At least partially the informal economy escapes from the official registered GDP and hidden migration from the official demographic statistics. This can affect in a significant way the measurement of sustainable development and consequently policies in this field. Coming from general accepted findings of the theory, we concentrate on evaluating the reasons of agents to be involved in hidden economy and estimating the size of this part of economy. Today, there are evidences of a tendency to extended hidden migration together with an increasing official migration usually from eastern EU members to western countries. In a sense, hidden migration could be in relation with informal economy. Using some indirect procedures, we try to estimate the size of hidden migration and its impact on the official side of economy and its potential growth in the future. The main application of the developed methodology is in case of Romania.
    Keywords: informal income; inactive population; emigration potential; hidden migration
    JEL: F22 C13 C51 O17
    Date: 2011–06–08

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