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on Informal and Underground Economics |
| By: | Anne Brockmeyer; François Gerard; Gabriel Ulyssea; Linda Wu; Marcelo Bergolo; Rodrigo Ceni González; Benard Kirui; Andrea Lopez-Luzuriaga; Leonardo Fabio Morales; Andrea Otero-Cortés; Nadine Riedel; Matías Tapia; Tanisa Tawichsri; Verena Wiedemann |
| Abstract: | This paper studies formal employment dynamics using linked employer–employee data from eight countries spanning a wide income range from Kenya to Chile. First, we show that formality rates increase with development, both between and within countries, because more workers enter the formal sector, not because they spend more time in formal jobs. Second, formal labor market fluidity increases with development, as workers hold more formal jobs, spend less time in each job, and less time between jobs. Third, greater fluidity is associated with higher life-cycle wage growth, which is largely accounted for by within- rather than between-firm wage gains. |
| Keywords: | formal employment, labor market fluidity, economic development |
| JEL: | J46 J63 O15 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12742 |
| By: | Omar Bamieh; Juan J Dolado; Álvaro Jáñez; Felix Wellschmied |
| Abstract: | Chile's 2022 Platform Work Law mandates firms to monitor their subcontractors' formality and establishes maximum working hours, minimum pay, and the right to collective bargaining among independent contractors. Chile further stands out worldwide for providing a comprehensive and nationally representative dataset for platform work that allows us to track workers' labor market outcomes over 2020-2024. By means of DiD and event study regressions, we find that this reform induced an 8-percentage-point shift from the share of informal to formal subcontractors with no change in the share of employees. Moreover, there were no significant changes in collective bargaining, compliance with minimum pay and maximum hours, or wage differentials between employees and subcontractors. The changes in hiring practices and wages are consistent with a structural labor market model where firms hire employees and formal and informal subcontractors. The calibrated model also shows that the reform reduced platforms' profits, while strictly enforcing hours regulations would lead to very small welfare losses. |
| Keywords: | Platforms, Subcontractors, Employees |
| JEL: | J21 J60 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:crm:wpaper:26159 |
| By: | Mehrotra, Santosh (Higher School of Economics); Chauhan, Dr Renu (Centre for INformal Sector & Labour Studies, Jawaharlal Nehru University, New Delhi, India) |
| Abstract: | Manufacturing-led growth remains central to India’s structural transformation, given its potential to generate large-scale employment for unskilled and semi-skilled workers transitioning out of agriculture, as well as its strong interlinkages with services employment. However, the share of manufacturing in both employment and gross value added has remained stagnant. Against this backdrop, this paper analyses the performance of India’s organised (or formal) and unorganised (or informal) manufacturing during last decade using unit-level data from the National Sample Survey's Annual Survey of Industries, Periodic Labour Force Surveys, and Annual Survey of Unorganized Sector Enterprises. The findings reveal a slowdown in employment and gross value added within the unorganised manufacturing sector between 2015–16 and 2022-23, while the organised manufacturing sector recorded gains. Overall, the manufacturing sector is increasingly becoming organised with share of unorganised sector in total employment and value added reducing over the years which can pose an opportunity or a challenge, depending on the absorption of workers in the organised sector. |
| Keywords: | manufacturing, organised sector, unorganised sector, informal sector, structural transformation, employment, formalisation, India |
| JEL: | L60 O14 O17 J21 J46 O53 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18688 |
| By: | Giovanni Di Bartolomeo; Silvia Fedeli; Stefano Papa |
| Abstract: | We test whether minimal, non-informative messages can nudge tax compliance beyond standard deterrence. In a within-subjects lab experiment, we randomize exposure to either a reminder that leaves audit probability unchanged or an informative warning tied to higher audit probability, and estimate effects on both the probability of evasion and the share of income evaded. A short non-informative reminder, holding incentives fixed, lowers the probability of evasion by about 16 percentage points, with no detectable effect on the evaded share among evaders; informative messages add at most marginal effects once audit probability is controlled for. |
| Keywords: | tax compliance, nudge, deterrence, audit, laboratory experiment |
| JEL: | H26 C91 D91 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:ter:wpaper:00205 |
| By: | Jonas Mayr; Amira Meddah; Irene Tubikanec |
| Abstract: | This paper introduces a novel stochastic framework for modelling tax evasion dynamics by extending the deterministic model of Bertotti and Modanese (2018) through the use of Piecewise Deterministic Markov Processes (PDMPs). A key limitation of the original model is the static treatment of taxpayer compliance and evasion behaviour. We address this limitation by incorporating two stochastic mechanisms:(i) audits, where random enforcement events shift non-compliant individuals toward compliance, and (ii) imitation, where social influence drives compliant individuals toward evasion. We develop each mechanism as a separate PDMP, proving that both preserve the fundamental conservation laws of population and global income. Numerical simulations show that these mechanisms produce opposing long-term outcomes: pure audits lead to full compliance, while pure imitation leads to full evasion. The central contribution is a combined PDMP model in which both dynamics interact. This model no longer converges to an extreme equilibrium state. Instead, it can exhibit persistent fluctuations around the deterministic trajectory and suggests convergence to a stationary distribution, providing a more realistic representation of compliance-evasion dynamics observed in real economies. The proposed framework offers a versatile approach for integrating behavioural stochasticity into socio-economic models. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.23919 |
| By: | Llilith Burgstaller; Lars P. Feld |
| Abstract: | Reliable estimates of undeclared work in Germany are scarce, yet they matter for tax and social security policy. Using two large-scale surveys of the German general population and recipients of transfer benefits particularly, we elicit the prevalence of the supply and demand of undeclared work via direct questions, a crosswise model and a list experiment. In line with economic theory, opportunity and incentives shape the decision to work undeclared. The self- and marginally employed as well as transfer recipients who face high effective marginal tax rates are particularly likely to work undeclared. The potential, especially for envelope wages, is substantial. Methodologically, the crosswise model consistently yields higher prevalence estimates for both supply and demand than direct questioning. We discuss assumptions and challenges when implementing list experiments. |
| Keywords: | collaborative tax evasion, experimental survey, undeclared work |
| JEL: | H26 E26 O17 D91 C92 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12728 |
| By: | Ambel, Alemayehu A.; Woldeyes, Firew Bekele |
| Abstract: | This study investigates taxpayer responses to tax compliance interventions undertaken in collaboration with Ethiopia’s revenue authority, focusing on gender differences among business owners. The research targeted a sample of 5, 408 business owners, and the interventions—letters highlighting tax obligations and civic responsibilities—were successfully implemented with 3, 551 participants. The interventions involved letters emphasizing tax obligations and civic duties and were evaluated through a randomized controlled trial across diverse economic sectors and sub-city locations. Data from quantitative surveys and administrative records provided information about reported tax declarations and compliance behaviors. The findings indicate a balance in key variables before the intervention, with notable impacts of the intervention on reported profit tax declarations. While examining gender differences in tax compliance, the study found no differential effects of the intervention based on business owners’ gender. Specifically, the result shows that the difference in tax compliance between male and female business owners is not statistically significant at both intensive and extensive margins. This indicates that gender did not play a meaningful role in influencing tax compliance as a result of the intervention. |
| Date: | 2026–06–08 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11409 |
| By: | Martin Leites (IECON-UDELAR); Xavier Ramos (Universitat Autonoma de Barcelona); Cecilia Rodriguez (cecilia.rodriguez@fcea.edu.uy); Joan Vila (IECON-UDELAR) |
| Abstract: | We contribute to the very incipient literature that estimates the intergenerational mobility of income from large-scale administrative data using high-quality income data and provide novel evidence of intergenerational income mobility in a middle-income country, Uruguay. Our estimates address the important role of informal labor markets, one of the features of low- and middle-income countries, and a major challenge to obtain unbiased estimates of intergenerational mobility in these countries. We estimate an IRA of 0.292, indicating that persistence is higher in Uruguay than in high-income countries, but lower than in the US. Our results show that (i) informal income increases intergenerational persistence, (ii) intergenerational persistence is higher at the upper half of the distribution, especially at the richest decile, and (iii) intergenerational income persistence is largest among parents and children of the same sex. |
| Keywords: | Intergenerational income mobility, Informal labor markets, Uruguay, Non-linearities |
| JEL: | D31 J62 E26 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2026-694 |
| By: | Tahar Kharchi (École Normale Supérieure de Sétif, LAGAM - Laboratoire de Géographie et d'Aménagement de Montpellier - UMPV - Université de Montpellier Paul-Valéry) |
| Abstract: | This study examines the spatial and economic dimensions of parallel trade networks in Algeria's high plateau region, focusing on Setif and El Eulma as representative urban systems. Using spatial econometric methods and network analysis, we investigate how informal economic structures, particularly the "Doubaï markets, " have reshaped urban hierarchies and regional economic integration. Our analysis reveals that El Eulma has emerged as a critical node in transnational informal trade, connecting North African markets with Mediterranean and Asian supply chains. The parallel economy, estimated at 33-45% of regional GDP, operates through sophisticated networks that bypass formal institutions while generating significant employment and commercial activity. We employ a mixed-methods approach combining MIMIC (Multiple Indicator Multiple Causes) models, spatial autoregressive specifications, and qualitative network mapping to quantify these relationships. Results demonstrate strong spatial spillovers between formal and informal sectors, with infrastructure development and institutional quality serving as key determinants of informal economy size. The study contributes to urban economics literature by documenting how second-tier cities in resource-dependent economies develop alternative growth pathways through informal trade networks. Policy implications suggest that integration strategies focusing on reduced transaction costs and simplified regulation may prove more effective than enforcement-based approaches. |
| Keywords: | Urban economics, Transnational commerce, Regional development, Parallel trade, Spatial networks, Commerce parallèle, Développement régional, Échanges transnationaux, Économie urbaine, Réseaux spatiaux |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05626114 |
| By: | Mohamed, Ahmed Ezzeldin (Toulouse School of Economics) |
| Abstract: | This article applies Esping-Andersen's welfare state typology to Egypt from 1995 to 2005. It examines state, market, and society relations during market-oriented reforms and analyzes seven welfare schemes and safety nets. It characterizes Egypt's welfare state as conservative/informal, with benefits tied to formal employment and families, religious institutions, and clientelistic networks filling gaps for the informal sector. |
| Date: | 2026–06–10 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:n8spd_v1 |
| By: | Marcio Pochmann (Universidade Estadual de Campinas); Luciana Caetano da Silva (Universidade Federal de Alagoas) |
| Abstract: | PT Este artigo se propõe a analisar as nuances da precarização do trabalho no Brasil, com foco nas alterações de legislação trabalhista e reestruturação produtiva que se inicia nos anos 1990. A flexibilização dos vínculos trabalhistas vem crescendo, desde então, conforme registros da Relação Anual de Informações Sociais (RAIS, n.d.). A Reforma Trabalhista implantada através da lei 13.467/2017 aprofundou o nível de precarização do trabalho, quando regulamentou as contratações atípicas, classificando-as como empregos formais. Ao fazê-lo, criou um paradoxo, fazendo expandir as ocupações quase despidas de direitos trabalhistas enquanto declinava a taxa de informalidade. O novo padrão de empregos formais nada mais é que a institucionalização da informalidade. A estagnação econômica registrada no Brasil, na segunda década do século 21, associada à reestruturação produtiva, colaborou com a expansão dos mecanismos de exploração do trabalho. Para fins metodológicos, serão cruzados os dados sobre a trajetória da informalidade no Brasil com os dados acerca da expansão das ocupações não tradicionais, desde a reforma trabalhista de 2017. A pesquisa revela que, a despeito da elevação dos vínculos formais, há elevado grau de precarização com tendência de expansão dos vínculos atípicos, com menor ônus ao empregador, sob a égide da acumulação flexível.<p> EN This article aims to analyze the nuances of job insecurity in Brazil, focusing on the changes in labor legislation and productive restructuring that began in the 1990s. The flexibilization of employment relationships has been on the rise ever since, according to the Annual Social Information Report (RAIS, n.d.). The Labor Reform implemented through law 13.467/2017 deepened the level of job insecurity when it regulated atypical contracts, classifying them as formal jobs. In doing so, it created a paradox, expanding occupations almost devoid of labor rights while the informality rate declined. The new pattern of formal jobs is nothing more than the institutionalization of informality. The economic stagnation recorded in Brazil in the second decade of the 21st century, combined with productive restructuring, contributed to the expansion of mechanisms for exploiting labor. For methodological purposes, data on the trajectory of informality in Brazil will be cross-referenced with data on the expansion of non-traditional occupations since the 2017 labor reform. The research reveals that, despite the increase in formal jobs, there is a high degree of precariousness with a tendency for atypical jobs to expand, with a lower burden on the employer, under the aegis of flexible accumulation. |
| Keywords: | precarização do trabalho; flexibilização das relações laborais; subtração de direitos trabalhistas; precariousness of work; flexibilization of labour relations; subtraction of labour rights |
| JEL: | J78 J81 J83 J88 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:col:000418:022889 |
| By: | Jose Dari Krein (Universidade Estadual de Campinas); Jana Silverman (Penn State University); Laura Moisá (Universidad Nacional de Colombia) |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:col:000418:022884 |
| By: | Oscar Esteban Morillo Martínez (Universidad Nacional de Colombia) |
| Abstract: | ES Este artículo estudia la teoría económica que se encuentra detrás de los análisis y la política pública sobre la informalidad. Para esto se realizará un repaso por la teoría hegemónica (marginalista-neoclásica) buscando comprender dicho marco teórico y su relación con la política económica. De esta manera, se presentará la principal corriente del pensamiento económico, con sus implicaciones sobre la política pública y el tratamiento de la informalidad, y se le criticará de manera profunda y concisa, hallando sus principales falencias teóricas y pretendiendo demostrar su incapacidad para describir cualquier sistema económico de forma lógica y coherente. Con esto en mente, se discutirán nociones alternativas para comprender el fenómeno de la informalidad y el desempleo, partiendo de la propuesta de la economía popular del profesor César Giraldo y continuando con la teoría de la demanda efectiva de Keynes. De aquí se desprenderán condicionantes para una política pública que pretenda, por un lado, la reducción del desempleo y, por el otro, el reconocimiento del sujeto social de la economía popular.<p> EN The paper studies the economic theory behind the analysis and the public policy about informality. For this we will review the hegemonic economic theory (marginalist-neoclassical) to grasp such theorical framework and its relationship with economic policy. The mainstream economic thought will be presented with its implications on economic policy and its treatment of informality, and it will be criticized in a deep and concise manner, finding its principal theoretic failures and pretending to show its inability to describe any economic system in a coherent and logical manner. Alternative notions about informality and unemployment will be discussed, starting from the proposal of popular economy from the professor César Giraldo and continuing with the Keynes theory of effective demand. From here on, some conditions will be deployed for a public policy that pretends, on the one hand, a reduction of unemployment and, for the other, the recognition of the popular economy social subject. |
| Keywords: | economía popular; reproducción social; demanda efectiva; crecimiento económico; informalidad; Popular economy; Social reproduction; Effective demand; Economic growth; Informality |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:col:000418:022887 |