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on Informal and Underground Economics |
| By: | Wendy Cunningham; David Newhouse; Federica Ricaldi; Seuyong, Feraud Tchuisseu; Viollaz, Mariana; Ifeanyi Nzegwu Edochie |
| Abstract: | This paper describes the state of informal sector work in urban Sub-Saharan Africa, using household surveys from 26 countries representing 61 percent of the population of Sub-Saharan Africa and firm surveys from three countries. Five main conclusions emerge. First, the urban informal sector is large and persistent in Sub-Saharan Africa. Approximately 56 to 65 percent of urban workers are informal, half of whom are self-employed. Data from five countries suggest little systematic reduction in the prevalence of informality during the 2010s. Second, heterogeneity in the African informal sector cuts along demographic lines. Women are overrepresented in informal self-employment, men in informal wage work, and youth in unpaid employment. Third, while the urban informal workers are, on average, poorer and in less-skilled occupations than formal sector workers, the majority are not extremely poor and are in mid-skilled occupations. Fourth, informal enterprises are small and are challenged to survive and grow into job-creating firms. Few find much benefit from registration given the costs, both monetary (taxes) and transactional (information about the registration process). Fifth, access to urban public services (utilities) is weakly associated with the probability of working in an informal job, although access to mobile phones is high across all job types. If thriving urban jobs are to contribute to economic and social development in Africa, it will be crucial for policies and programs to take into consideration the heterogeneity in jobs, the profile of workers, and the urban context. |
| Date: | 2024–02–14 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10703 |
| By: | Zaakhir Asmal; Haroon Bhorat; Alexia Lochmann; Lisa Martin; Kishan Shah (Development Policy Research Unit, University of Cape Town) |
| Abstract: | This report presents an empirical profile of South Africa’s informal sector, with an aim of understanding in empirical detail, why South Africa’s informal sector employment remains relatively low in comparison to other developing countries. We present an overview of exogenous constraints to informal activity in South Africa, accompanied by feedback from relevant national and local policy officials where appropriate. We received limited feedback from city officials – itself an indicator of how the informal sector is currently viewed within the country. We consider the limited feedback received within the context of existing data and findings in the literature concerning the informal sector of South Africa. We then provide a preliminary discussion on possible supply-side policy options for expanding the informal sector in South Africa and challenges that may be faced in this regard. |
| Keywords: | informal sector, developing country, South Africa, employment |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:ctw:wpaper:202403 |
| By: | Grover, Arti Goswami; Pereira Lopez, Mariana De La Paz |
| Abstract: | Using three rounds of the World Bank's Business Pulse Surveys in South Asia, this paper quantifies the relationship between informality and firms' investment and employment decisions. Accounting for multidimensionality in definition and the margins of informality, the analysis suggests that first, informal firms remain credit and liquidity constrained before and during the crisis, especially the necessity firms. In the pre-crisis period, access to finance is correlated with the extensive margin of informality, while during the crisis, both margins of informality matter. Second, informal firms perceive uncertainty to be higher because of pessimistic expectations on recovery and lower ability to predict future sales, especially the necessity firms. Third, credit constraints and accentuated uncertainty among informal firms discourage investments. Finally, while employment growth is slow and gradual for formal firms as they begin to recover sales, job growth in informal firms does not correspond to the recovery. The results suggest that countries with a large informal sector may face unusually depressed investments and jobs recovery and may have to deploy additional policy levers to accelerate recovery in the post-crisis period. |
| Date: | 2023–10–03 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10580 |
| By: | Londoño-Vélez, Juliana; Tortarolo, Dario |
| Abstract: | Despite substantial offshore tax evasion, Argentines disclosed assets worth 21 percent of GDP under a tax amnesty in 2016. This paper studies how enforcement initiatives impact individuals' tax behavior, tax progressivity, and revenue collection. Offshore tax evasion is concentrated among the wealthiest 0.1 percent of adults. Tax compliance improved, expanding the tax bases for both wealth tax and capital income tax, especially at the top. The subsequent tax hike on foreign assets in 2019 boosted tax progressivity, raising the effective tax rate for the wealthiest 0.1 percent of adults, and established Argentina's wealth tax as one of the most successful globally in revenue generation. |
| Date: | 2023–12–11 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10639 |
| By: | Hapsari, Indira Maulani; Shu Yu; Pape, Utz Johann; Mansour, Wael |
| Abstract: | Informality is a multidimensional development challenge with features that potentially differ across workers, firms, and countries. This paper first briefly summarizes the literature, discusses the multiple existing definitions of informality, and adapts the cross-country analytical framework on informality to the context of Indonesia. It then uses several novel datasets and a range of modeling approaches to capture the levels and trends of both output and employment informality in Indonesia. It further contributes to the existing literature by estimating informality in Indonesia at the regional, provincial, and sectoral levels. Those estimates were then benchmarked to the levels, trends, and features of the informal sector in emerging markets and developing economies to examine whether the major features of the informal sector in Indonesia deviate from those observed in other emerging markets and developing economies. The paper finds that despite the declining trend, both output and employment informality remain elevated and broadly above the comparator countries in the region. Informality in Indonesia is mostly concentrated in agriculture and low-skilled services and is associated with higher poverty at the provincial level. There also appear to be productivity, education, and salary gaps between formal and informal workers. Moreover, markets are not segregated as informal firms compete strongly with formal ones. Finally, informality seems to pose macroeconomic challenges as tax efforts and financial sector depth remain below the averages for emerging markets and developing economies. |
| Date: | 2023–10–06 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10586 |
| By: | Simbeye, Laban; Lungu, Eliya; Kumwenda, Andreya; Banda, Edna; Msoni, Jonathan; Kuo, Ryan Chia |
| Abstract: | Zambia’s private sector must deliver quality jobs at scale to keep up with its expanding working age population, contribute to economic transformation, and reduce poverty. This entails both the creation of high-quality jobs and productivity improvement among existing jobs and firms. This paper analyzes the dynamics of formal firms to identify the drivers and barriers to productivity, formal employment, and formal wage growth in Zambia. Leveraging firm and worker administrative tax data from Zambia, the paper decomposes labor productivity and wage growth among formal firms and workers in Zambia into within-firm, between-firm, inter-sectoral, and dynamic components. The findings show that the aggregate labor productivity of formal firms declined over 2014–21, driven by secular within-firm declines in the non-mining industry and service sectors. By contrast, labor productivity grew in agriculture and remained flat in mining over the same period. Real wage trends for formal workers have mostly mirrored labor productivity dynamics, declining 40-50 percent across non-agriculture sectors but growing slightly in agriculture, largely driven by within-firm shifts rather than between-firm or between-sector dynamics. The declines in labor productivity and wages reflect business environment challenges related to access to finance and electricity, as well as burdensome formal compliance requirements and competition with the informal sector. Within-firm labor productivity challenges also reflect low skills and capacity—including low technology adoption—among both firms and workers. |
| Date: | 2024–04–18 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10756 |
| By: | Jolevski, Filip; Nayyar, Gaurav; Pleninger, Regina; Shu Yu |
| Abstract: | This paper examines spillovers in the use of digital technologies from formal to informal businesses by exploring differences in geographic proximity. Using a unique set of geocoded data from the 2019 World Bank Enterprise Surveys in Zambia, the findings indicate that closer geographic proximity to formal firms is associated with a significantly higher likelihood of digital adoption by informal businesses. The finding holds for various types of digital technologies, ranging from computers, tablets, and cell phones to mobile money transactions, and is robust to various measures of geographic proximity and model modifications. The results vary by the owner’s level of education and business age. The results also suggest that the spillovers in information and communications technology use can be explained by competition in the local market and learning through enhanced interactions. |
| Date: | 2024–04–23 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10757 |
| By: | Bloem, Jeffrey Richard; Damon, Amy; Francis, David C.; Mitchell, Harrison |
| Abstract: | Violent conflict between nomadic herders and settled—mostly agricultural—communities in Nigeria occurs as both groups clash over the use of land and resources, in part, due to a changing climate. This paper uses panel data from 2010 through 2019 to study the labor responses of individuals to exposure to herder-related violence during the post-planting and post-harvest seasons. Specifically, it considers a “shadow of violence” channel, where recent exposure to a violent event alters labor-related responses to a subsequent event. Results find that in the post-planting season, exposure to a herder-related violent event leads to an increase in informal work for both men and women, a decrease in agricultural work for men, and an increase in total hours worked for women among households that have previously been exposed to herder-related violence in the preceding six months. The paper also considers two other specific forms for a “shadow of violence” channel—namely, raised tensions over open-grazing bans enacted in 2016 and 2017 within three states and a drastic peak in violence in the first half of 2018— and find similar results. Lastly, findings show how household exposure to violence can have so-called knock-on effects. Households exposed to herder-related violence in the previous post-planting season shift consumption and crop selling patterns in the post-harvest season. These findings highlight the gender-specific labor response to violence and document the role of the informal sector as a partial safety net for individuals in the presence of adverse shocks. |
| Date: | 2023–11–15 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10607 |
| By: | Ambel, Alemayehu A.; Woldeyes, Firew Bekele |
| Abstract: | This study investigates gender disparities in the tax burden in Addis Ababa, Ethiopia, using data on 2, 320 taxpayers for 2011 and 2012. A quantile regression analysis is employed to control for firm characteristics such as sector, size, and age. The results show that women-owned businesses are more likely to operate in low-profit sectors and report lower sales and tax liabilities than men-owned businesses. However, women-owned businesses pay as much as men-owned businesses in taxes, suggesting that they are subject to a higher effective tax rate. This, in turn, may lead to women-owned businesses exiting the tax net at a higher rate. These findings suggest that gender disparities in tax compliance are not simply due to differences in firm characteristics but may also be due to biases in tax declaration and enforcement processes. |
| Date: | 2024–02–27 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10712 |
| By: | Galego Mendes, Arthur; Miyamoto, Wataru; Nguyen, Thuy Lan; Pennings, Steven Michael; Feler, Leo |
| Abstract: | This paper provides new evidence on the macroeconomic impact of cash transfers in developing countries. Using a Bartik-style identification strategy, the paper documents that Brazil’s Bolsa Familia transfer program leads to a large and persistent increase in relative state-level GDP, formal employment, and informal employment. A state receiving 1% of GDP in extra transfers grows 2.2ppts faster in the first year, with R$100, 000 of extra transfers generating five formal-equivalent jobs, half of which are informal. Consistent with a demand-side mechanism, the effects are concentrated in non-tradable sectors. However, an open-economy New Keynesian model only partially captures the high multipliers estimated. |
| Date: | 2023–12–19 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10652 |
| By: | Ablaza, Christine Marie Jimenez; Alladi, Vinayak; Pape, Utz Johann |
| Abstract: | Indonesia has made remarkable economic progress since the Asian Financial Crisis. To sustain its growth and achieve high-income status by 2045, it needs to address the long-standing challenge of informality. Doing so will require a coordinated policy approach informed by robust empirical evidence on the underlying causes and consequences of informality. This paper contributes to this agenda by reviewing the state of knowledge on the informal economy in Indonesia. The study focuses on three key areas of relevance to future policies on informality, namely: (1) key definitions and measures, (2) existing data sources, and (3) findings from previous research. The paper identifies remaining gaps in the existing data and empirical literature and uses this to construct an agenda for future work on the subject. |
| Date: | 2023–11–15 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10608 |
| By: | Owoo, Nkechi Srodah; Amankwah, Akuffo; Castaing, Pauline; Palacios-Lopez, Amparo |
| Abstract: | The informal sector contributes significantly to the total output and employment of low-income countries. While women-owned businesses feature strongly in these informal environments, they are generally characterized by low productivity. This paper explores how household business performance may be influenced by owners’ personality traits and their attitudes toward gender roles. Using multi-topic household survey data collected in two regions of Ghana, the results show that among female business owners, being organized is an important determinant of business success, while among male business owners, power motivation and tenacity are important factors. However, increasing traditionalism tends to dampen the effects of these personality traits for both genders. Other factors that are positively correlated with women-owned business performance include business registration, separating expenses for home and business purposes, ownership of a business bank account, use of social media, as well as urban location of the business. For men-owned businesses, the results show that those that are located in traditional markets, have bank accounts, and use literate employees in their operations tend to perform better. The findings imply that policies that aim to boost women-owned business performance need to consider the main barriers, especially attitudes toward gender roles, that may determine how businesses operate in these settings. The results also suggest the importance of soft skills to boost business performance among men- and women-owned businesses. |
| Date: | 2024–06–13 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10804 |
| By: | Anne, Clement Xavier Frederik; Chalendard, Cyril Romain; Fernandes, Ana Margarida; Rijkers, Bob; Vicard, Vincent |
| Abstract: | To identify transactions at risk of tariff evasion, this paper matches export transaction data from France with import transaction data from Madagascar using container identifiers. Reporting discrepancies between exporters and importers are prevalent but small, with over two-fifths of importers reporting in a way that increases their tariff liability. Yet, aggregate tariff revenues are 24 percent lower due to discrepancies. These revenue losses are highly concentrated: the top five evaders account for three-quarters of all tariff revenue losses and larger shipments are more at risk of evasion. Tariff enforcement in Madagascar is ineffective and only marginally mitigates revenue losses. |
| Date: | 2023–11–14 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10606 |
| By: | Chattha, Muhammad Khudadad; Tyas, Prabaning; Soko, Naranggi Pramudya; Fadilla, Raka Rizky |
| Abstract: | This paper studies the impact of point of sale technology adoption on local tax compliance by firms. The paper exploits administrative data on monthly restaurant and hotel tax payments in the Indonesian districts of West Manggarai and Gorontalo and combines this with information on the point of sales distribution timeline from 2018 to 2022. The findings show that certain point of sales treatments led to a substantial increase in restaurant tax payments, ranging from 55 to 180 percent, while others did not increase tax revenues. The paper discusses the underlying drivers of the results and argues that the effectiveness of point of sales technology is conditional on (i) the devices’ ease of use, (ii) the recipients’ technological aptitude, and (iii) the presence of information accessible by third parties. |
| Date: | 2023–11–20 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10610 |
| By: | Wahby, Sarah Mohammad Osman; Assaad, Ragui A |
| Abstract: | Refugees face important barriers to participation in the formal market, which locks them in informal employment and makes them more vulnerable to shocks. Using data from Jordan, this paper compares the job finding and separation rates of Syrian refugees to those of their hosts before and after the onset of the COVID-19 pandemic. The findings show the change in these rates over time for Syrians to be similar to those of their Jordanian hosts prior to the pandemic, with a significant divergence after the start of the pandemic. Distinguishing between Syrians living in camps and those living in host communities shows that the Syrian disadvantage was entirely explained by living in camps. |
| Date: | 2024–01–16 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10670 |
| By: | Akuffo Amankwah; Pauline Castaing; Nkechi Srodah Owoo; Amparo Palacios-Lopez |
| Abstract: | In addition to the conventional determinants of labor market participation and the choice between wage employment and self-employment, there is a growing interest of the significance of gender role attitudes and personality traits. This study uses data from the 2022 Ghana Informal Sector Measurement Study to investigate the influence of these factors on employment outcomes in the Northern and Ashanti regions of Ghana. The findings are based on a series of analyses, including descriptive, multinomial logistic, and linear probability model regressions. The empirical results show the critical role played by both gender role attitudes and personality traits in shaping individuals' decisions on labor market participation and employment choices. Notably, personality traits emerge as significant drivers of observed employment outcomes. However, the impact of these personality traits is often mitigated or even reversed in the presence of heightened traditionalism. Furthermore, the gender-disaggregated analysis reveals that possessing at least a secondary education level is a pivotal factor in the selection of men into formal employment, whereas this criterion holds less significance for women. Conversely, once the decision to participate in the labor market has been made, having at least a secondary education becomes relevant for securing wage employment, regardless of an individual's gender. |
| Date: | 2024–01–10 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10664 |
| By: | Okunogbe, Oyebola Motunrayo; Tourek, Gabriel Zenon |
| Abstract: | This paper examines recent evidence on tax administration interventions aimed at increasing tax revenues in lower-income countries. It focuses on two major themes: the use of new information technology tools—for identifying taxable entities, verifying tax liabilities, and ensuring collection of liabilities—and how the deployment and incentives of tax officials shape their performance. The paper discusses the promise and pitfalls of interventions in these two areas and the strategic interactions between them. Lastly, it emphasizes the importance of political incentives and considers the conditions under which governments choose to invest in tax capacity and expand tax collection. |
| Date: | 2023–12–20 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10655 |
| By: | Contreras Gonzalez, Ivette Maria; Dinarte Diaz, Lelys Ileana; Palacios-Lopez, Amparo; Costa, Valentina; Romero Esteban, Steffanny |
| Abstract: | Can alternative survey methods address the underreporting of women’s and youths’ labor market outcomes, and thus improve the measurement of the underlying gender- and age-based gaps This paper addresses this question using a survey experiment in El Salvador that compares two alternative survey methods—a list of activities survey module and enforced self-responses—against a traditional household survey, which consists of proxy responses without a list of activities module. The findings show that including the list of activities module yields higher work and employment rates for the average respondent compared to the standard household survey. Notably, when using the list of activities module, the reported work gap between men and women falls by 8.1 percentage points. Moreover, when using enforced self-responses, the male age gaps in employment and work rates fall by 13.9 and 12.3 percentage points, respectively. The paper provides evidence that the prevalence of peers’ informal employment or social norms for domestic obligations drive these results. |
| Date: | 2024–05–16 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10773 |
| By: | El-Haddad, Amirah; Ishak, Phoebe Saad Wasfy |
| Abstract: | This paper examines the evolution of the gender employment gap post COVID-19 in the Egyptian manufacturing sector, using a unique firm-level data set. The findings show that the COVID-19 shock led to a slight improvement in the gender employment gap, both in absolute and relative terms, driven by a larger reduction in male employment compared to that for female employment. The heterogeneity analysis shows that exporting firms and firms in industrial zones on average increased both types of employment post COVID-19. Two types of firms contributed to a worsening of the gender gap, namely firms that adopted technology and those that provided worker training prior to the pandemic, pushing male employment up while not doing the same for female employment. Additionally, the informal sector contributed to a worsening of the gender gap during the pandemic. |
| Date: | 2023–12–14 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10646 |
| By: | Sónia Cabral; Joana Garcia; Raquel Miranda; Susana Peralta; João Pereira dos Santos |
| Abstract: | This paper offers the first detailed characterization of the labor market in a tax paradise and the first assessment of how a reform aimed at discouraging international tax avoidance affects workers in such a location. Our findings reveal that incumbent workers, who were relatively few compared to firms’ profits, were highly educated, performed specialized tasks, and benefited from a wage gap, particularly large at the top. Immediately after the reform announcement, several workers exited. Stayers had a higher probability of working for several firms simultaneously and experienced wage increases of around 8% two years after the reform, representing a small cost relative to firms’ tax benefits. New workers who moved post-reform earned wages that were, on average, 30% lower than incumbents and were more likely to be on temporary contracts. These results provide valuable insights into policies aimed at increasing economic substance in low-tax jurisdictions. |
| JEL: | H26 F23 J31 J38 H30 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ptu:wpaper:w202416 |
| By: | Haroon Bhorat; Timothy Köhler (Development Policy Research Unit, University of Cape Town) |
| Abstract: | This paper considers the labour market effects of an unconditional cash transfer targeted at the unemployed in a context of extreme unemployment. Using a staggered, heterogeneity robust difference-in-differences design applied to panel labour force survey data, we estimate the contemporaneous and dynamic effects of a new transfer introduced in South Africa, the Social Relief of Distress grant, the first labour market-linked transfer in the country’s history. We find that, on aggregate, receipt has positive effects on the probabilities of job search, trying to start a business, and employment. The latter effects are driven by effects on wage and informal sector employment. We show that employment effects are positive for the unemployed who are either actively searching for work or trying to start a business, as well as for those who are not, but they are substantially larger for the former. This indicates that the transfer both encourages and improves the efficiency of labour market activity by addressing labour market constraints but highlights the importance of active labour market engagement for improving employment prospects through the transfer. However, these employment effects are only evident in the short-term and quickly become and remain null in the longer-term. These results suggest that cash transfers can help reduce labour market constraints but such gains need not translate into better longer-term employment prospects in high-unemployment contexts. |
| Keywords: | Cash transfers; Labour market; Unemployment; South Africa; COVID-19; Social Relief of Distress grant |
| JEL: | D04 D31 C54 H53 J48 J68 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:ctw:wpaper:202405 |