nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2020‒08‒31
ten papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Sovereign Default, Taxation, and the Underground Economy By Almuth Scholl; Liang Tong
  2. Labor Market Policies in a Roy-Rosen Bargaining Economy By Jales, Hugo; Yu, Zhengfei
  3. Wage Differentials in EU Transition Economies (2009-2016): How Large a Penalty for Females and Informal Employees? By Philippe Adair; Oksana Nezhyvenko
  4. Transforming informal work and livelihoods in Costa Rica and Nicaragua By Enrique Alaniz; T. H. Gindling; Catherine Mata; Diego Rojas
  5. Transitions between informal and formal jobs in India: Patterns, correlates, and consequences By Rajesh Raj Natarajan; Simone Schotte; Kunal Sen
  6. Does Growth Enhancement Support Scheme (GESS) Contribute to Youth Development in Informal Farm Entrepreneurship? Evidence from Rural Communities in Nigeria By Joseph I. Uduji; Elda N. Okolo-Obasi; Simplice A. Asongu
  7. Women at Work in the Pre-Civil War United States: An Analysis of Unreported Family Workers By Chiswick, Barry R.; Robinson, RaeAnn Halenda
  8. Relación entre las características de los mercados de trabajo latinoamericanos y la ley de Okun By María Sylvina Porras; Ángel L. Martín-Román
  9. Análisis del sector informal y discusiones sobre la regulación del trabajo en plataformas digitales en el Ecuador By Arias Marín, Karla; Carrillo Maldonado, Paul; Torres Olmedo, Jeaneth
  10. Albania; Technical Assistance Report-Revenue Administration: Supporting the Delivery of the Reform Agenda By International Monetary Fund

  1. By: Almuth Scholl (Department of Economics, University of Konstanz); Liang Tong (Department of Economics, University of Konstanz)
    Abstract: This paper studies the dynamic interaction between sovereign default risk, taxation, and the un-derground economy. For a large sample of countries, we find that the size of the underground economy is positively correlated with sovereign debt and interest spreads. We rationalize these empirical regularities within a quantitative model of sovereign default that explicitly accounts for underground activities. We highlight a vicious circle: Higher sovereign risk premia tighten the endogenous borrowing constraint and force the government to raise taxes. Tax hikes, however, induce the private sector to invest less and to evade taxes by producing in the underground sector. Eventually, falling tax revenues force the government to either implement further tax hikes or to default. Our quantitative findings suggest that the underground economy fosters sovereign default risk and deepens debt crises.
    Keywords: sovereign debt, default, fiscal policy, underground economy, tax evasion
    JEL: E62 F34 H26
  2. By: Jales, Hugo; Yu, Zhengfei
    Abstract: We study the effects of labor market policies using a bargaining model featuring compensating differentials (Rosen, 1986) and self-selection (Roy, 1951). The framework allows us to create a taxonomy of formal and informal employment. We use the model to estimate the effects of the minimum wage for the Brazilian economy using the "PNAD" dataset for the years 2001-2005. Our results suggest that, although the minimum wage generates unemployment and reallocation of labor to the informal sector, the policy might be desirable if the employment losses are concentrated in jobs characterized by low surplus.
    Date: 2020
  3. By: Philippe Adair (University Paris-Est Créteil-UPEC; ERUDITE Research Team); Oksana Nezhyvenko (National University of Kyiv-Mohyla Academy-NaUKMA; ERUDITE Research Team)
    Abstract: The paper tackles the wage differentials issue upon a large sample of employees in eight EU transition countries over 2009-2016 with respect to human capital theory vs. labour market segmentation theory and according to gender. Using several measurement methods, the results display a significant penalty in average real monthly wages for informal employees, which is always higher for females; hence, informal female employees face a double penalty. In regard of individual and job characteristics, earnings functions investigate the wage penalty for informality, which declines respectively to 20 per cent and 12 per cent for males, and 27 per cent and 17 per cent for female employees. Next, fixed effects model demonstrates that wage penalty reaches 23 per cent for females and over 10 per cent for males. Last, according to the decomposition model, explained variables (individual and job characteristics) account for two-thirds of the wage differentials, which prove better explained on the demand side of firms and supports the segmentation theory.
    Keywords: Decomposition model; EU-SILC; informal employment; Mincer model; panel data; quantile regression; transition economy; wage differentials
    JEL: E26 J16 J31
  4. By: Enrique Alaniz; T. H. Gindling; Catherine Mata; Diego Rojas
    Abstract: We divide workers into six work statuses: formal self-employed, upper-tier informal self-employed, lower-tier informal self-employed, formal wage-employed, upper-tier informal wage-employed, and lower-tier informal wage-employed. In both Costa Rica and Nicaragua, earnings are highest for formal work, next for upper-tier informal, and last for lower-tier informal. Mobility out of lower-tier informal work is higher than out of all other work statuses.
    Keywords: Employment, informal work, worker mobility, Costa Rica, Nicaragua, Informality
    Date: 2020
  5. By: Rajesh Raj Natarajan; Simone Schotte; Kunal Sen
    Abstract: The Indian labour market is characterized by a high level of informality, with large numbers of workers in poorly paid 'lower-tier' informal jobs, and somewhat better paid 'upper-tier' informal jobs, which do not have the same benefits and security of tenure as formal jobs. We examine the likelihood of individuals moving up from informal jobs to formal jobs (and vice versa) and from lower-tier to upper-tier informal jobs using a longitudinal dataset for India. We find that self-employed workers exhibit relatively more mobility than wage workers.
    Keywords: Formal and informal, informal, formal, lower tier, upper tier, work status, India
    Date: 2020
  6. By: Joseph I. Uduji (University of Nigeria, Nsukka, Nigeria); Elda N. Okolo-Obasi (University of Nigeria, Nsukka, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: Purpose – The purpose of this paper is to critically examine the impact of a growth enhancement support scheme (GESS) on youth development in informal farm entrepreneurship in Nigeria. Its special focus is to investigate the impact of the GESS on rural youths’ adoption of new technologies needed to sustainably increase food security in Nigeria. Design/ methodology/ approach – This paper adopts a survey research technique, aimed at gathering information from a representative sample of the population, as it is essentially cross-sectional, describing and interpreting the current situation. A total of 800 rural youths were sampled across the six geopolitical zones of Nigeria. Findings – The result from the use of a bivariate probit model indicate that the GESS has a significant impact on rural youths’ innovations in farming. Practical implication – This suggests that information and communication technology (ICT) could provide new opportunities for making farming more interesting and enterprising for rural young people. Social implication – It implies that while old male and female farmers are less likely to adopt the new farming technologies needed to achieve Nigeria’s agricultural transformation agenda (ATA), a younger generation can help introduce new technologies, whilst also learning from traditional methods. Originality/ value – This research adds to the literature on informal farm entrepreneurship and rural communities’ debate in developing countries. It concludes that engaging youths in GESS should form the foundation of the ATA in Nigeria, which, in turn, would offer adequate combination of new and traditional solutions to address the challenges of food insecurity in sub-Saharan Africa.
    Keywords: Youth Development Initiative, Informal Farm Entrepreneurship, Growth Enhancement Support Scheme (GESS), Rural Communities in Nigeria
    Date: 2020–01
  7. By: Chiswick, Barry R.; Robinson, RaeAnn Halenda
    Abstract: Rates of labor force participation in the US in the second half of the nineteenth century among free women were exceedingly (and implausibly) low, about 11 percent. This is due, in part, to social perceptions of working women, cultural and societal expectations of female’s role, and lack of accurate or thorough enumeration by Census officials. This paper develops an augmented free female labor force participation rate for 1860. It is calculated by identifying free women (age 16 and older) who were likely providing informal and unenumerated labor for market production in support of a family business, that is, unreported family workers. These individuals are identified as not having a reported occupation, but are likely to be working on the basis of the self-employment occupation of other relatives in their households. Family workers are classified into three categories: farm, merchant, and craft. The inclusion of this category of workers more than triples the free female labor force participation rate in the 1860 Census, from 16 percent to 56 percent, which is comparable to today’s rate (57 percent in 2018).
    Keywords: Women,Labor Force Participation,Occupational Attainment,Unpaid Workers,Unreported Family Workers,1860 Census
    JEL: N31 J16 J21 J82
    Date: 2020
  8. By: María Sylvina Porras (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Ángel L. Martín-Román (Facultad de Ciencias Sociales, Jurídicas y de la Comunicación)
    Abstract: The Okun's law has been confirmed in several Latin American countries, regardless of the model used, and the estimated coefficients indicate a weaker relationship between GDP and unemployment than in developed countries. On the other hand, there is a group of countries where the coefficients are not significant, or the values are very close to zero. These countries have the highest values of the following variables that characterize their labour markets: own-account employment, unpaid family workers, informal employment and employment in the agricultural sector.
    Keywords: Okuns’s law, unemployment, GDP growth, own-account employment, unpaid family workers, informal employment, employment in the agricultural sector
    JEL: E23 E24 E26 J64
    Date: 2020–06
  9. By: Arias Marín, Karla; Carrillo Maldonado, Paul; Torres Olmedo, Jeaneth
    Abstract: La informalidad es un fenómeno que afecta a muchas familias ecuatorianas. En 2018, se estimaba que el 72,6% de los trabajadores tenía un empleo informal; es decir, no contaba con un contrato legal y no aportaba a la seguridad social. Esta situación conlleva graves consecuencias para los trabajadores y sus familias, para las empresas y para la sociedad en general, por lo que debe constituir una prioridad de política pública. En el presente documento, se sintetizan las definiciones de informalidad y se analiza en profundidad la evolución del empleo informal en el Ecuador entre 2007 y 2019, sobre la base de la Encuesta Nacional de Empleo, Desempleo y Subempleo. Asimismo, se realiza un análisis de la legislación vigente y de algunas políticas públicas aplicadas en los últimos años. Por otro lado, y dado el contexto de las nuevas tecnologías y el surgimiento de un número cada vez mayor de trabajadores informales de plataformas digitales, se presenta una revisión de las prácticas de regulación internacionales realizada con el fin de identificar medidas de posible aplicación en el país. Por último, se plantean recomendaciones de política pública orientadas a promover la formalización y el empleo de calidad en el Ecuador.
    Date: 2020–07–31
  10. By: International Monetary Fund
    Abstract: This Technical Assistance Report discusses several tax administration issues and high-level recommendations for the reform agenda. The General Directorate of Taxes (GDT) continues to make good progress in modernizing its administration of the taxation system. A program to consolidate some core functions into fewer regional locations, beginning with the arrears collection function, should be accelerated. The GDT’s increased use of electronic services and telephone contact centers reduces the need for face-to-face contact with taxpayers. The GDT must have access to a broader range of third-party information, and data-warehouse facilities to manage the risk assessment with automated analytical tools. There are some positive developments in the audit function; however, further capacity building is necessary. A new comprehensive desk audit manual has been developed, which will help to standardize operations and provide more appropriate case allocation based on auditor experience and skills.
    Keywords: Tax revenue;Tax evasion;Revenue sources;Tax administration;Tax reforms;GDT,LTO,arrears,vat,taxpayer
    Date: 2019–04–02

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