Evaluating working conditions in the informal economy: Evidence from the 2015 European Working Conditions Survey

The Service Industries Journal

Kayaoğlu

2020

116

The Coronavirus pandemic has led to restrictions on movement and workplace closures, resulting in governments offering temporary financial support to enterprises and workers. This paper evaluates a group unable to access this financial support, namely those in the undeclared economy, and possible policy responses. To identify the service industries and workers involved, a late 2019 Eurobarometer survey of undeclared work in Europe is reported. This reveals that undeclared work is particularly prevalent in the hospitality, retail and personal services sectors and identifies the population groups over-represented. Given that this undeclared workforce is now largely unable to work, it will be argued that providing access to temporary financial support, through a voluntary disclosure initiative, would be a useful initiative not only to provide the income support these enterprises and workers need but also to bring them out of the shadows and put them on the radar of the state authorities.

Section: Covid-19 and The Undeclared Economy: A Literature Reviewmentioning

confidence: 99%

COVID-19 and undeclared work: impacts and policy responses in Europe

The Service Industries Journal

Kayaoğlu

2020

116

“…This has negative consequences. Informal workers have poorer working conditions (Williams and Horodnic, 2019), purchasers lack legal recourse and insurance cover (OECD, 2017), formal enterprises suffer unfair competition (OECD, 2017;World Bank, 2019) and informal enterprises lack legal protection and have poor access to capital to grow (Loayza, 2018). More widely, governments lose tax revenue and regulatory control over working conditions (ILO, 2018;World Bank, 2019).…”

Section: Introductionmentioning

confidence: 99%

Explaining the informal economy in Western Europe: beyond a rational economic actor perspective

Oz‐Yalaman

2020

JES

PurposeThe dominant theorisation of the informal economy views participants as rational economic actors operating in the informal economy when the expected benefits exceed the perceived costs of being caught and punished. Recently, an alternative theory has emerged which views participants as social actors operating in the informal economy due to their lack of vertical trust (in governments) and horizontal trust (in others). The aim of this paper is to evaluate these competing theorisations.Design/methodology/approachTo do so, data are reported from special Eurobarometer surveys conducted in 2007, 2013 and 2019 in eight West European countries (Austria, Belgium, France, Germany, Ireland, Luxembourg, the Netherlands and the United Kingdom).FindingsUsing probit regression analysis, the finding is that increasing the expected likelihood of being caught and level of punishment had a weak significant impact on the likelihood of participating in the informal economy in 2007, and there was no significant impact in 2013 and 2019. However, greater vertical and horizontal trust is significantly associated with a lower level of participation in the informal economy in all three time periods.Practical implicationsThe outcome is a call for a policy to shift away from increasing the expected level of punishment and likelihood of being caught, and towards improving vertical and horizontal trust. How this can be achieved is explored.Originality/valueEvidence is provided in a Western European context to support a shift away from a rational economic actor to a social actor approach when explaining and tackling the informal economy.

“…This has negative consequences. Undeclared workers have significantly poorer working conditions (ILO 2015;Williams and Horodnic 2019) and purchasers of undeclared products and services suffer from a lack of legal recourse and insurance cover (OECD 2017). Meanwhile, formal businesses suffer unfair competition from competitors operating undeclared (OECD 2017;World Bank 2019), whilst undeclared businesses have limited access to capital to expand and lack legal protection (Loayza 2018).…”

Section: Introductionmentioning

confidence: 99%

Re-theorising participation in undeclared work in the European Union: lessons from a 2019 Eurobarometer survey

Oz‐Yalaman

2021

European Societies

When explaining participation in undeclared work, the dominant theorisation views undeclared workers as rational economic actors participating in undeclared work when the benefits exceed the expected costs of being caught and punished. An alternative theorisation views participants' in the undeclared economy as social actors driven into undeclared work by their lack of vertical trust (in governments) and horizontal trust (in others). To evaluate these perspectives, this paper reports data from 27,565 interviews conducted for a 2019 Eurobarometer survey on undeclared work in 28 European countries. This reveals that raising the expected costs of being caught and punished has no significant impact on the likelihood of conducting undeclared work. However, greater vertical and horizontal trust have a significant impact on preventing participation in undeclared work, and vertical and horizontal trust also moderate the effectiveness of using penalties and detection to deter engagement in undeclared work. The implication for theory is that a social actor perspective is advocated. The result is a call for a policy shift away from the dominant deterrence approach that increases the penalties and risks of detection, and towards a policy approach focused on improving vertical and horizontal trust.