Does anybody know of any specific policy initiatives that a country has adopted that has been successful in moving work in the informal economy into the formal economy?
I am looking for 'good practice' policy initiatives that might be transferable from one country and could be implemented more broadly. These might be deterrence initiatives that increase the penalties or improve the risks of detection (e.g., initiatives to improve workplace inspections, improve data mining to identify the informal economy).
They might also be incentive measures that encourage the shift from the informal to the formal economy. These might be supply-side initiatives that make it beneficial and easier to operate in the formal economy (e.g., simpler registration, tax incentives). They might also be demand-side initiatives that encourage consumers/purchasers to buy from the formal economy (e.g., service vouchers, tax incentives).
Finally, they might involve awareness raising and education campaigns to persuade people of the benefits or working in the formal economy or costs of working in the informal economy. Or they might be initiatives that seek to improve the structural systemic drivers that lead to the prevalence of the informal economy (e.g., reducing corruption, modernizing governance).
Ideally, I am looking for specific concrete policy initiatives that have been evaluated to assess their impact.
I would start by scanning through the systematic reviews of the Campbell Collaboration - https://www.campbellcollaboration.org/library.html
The World Bank published a study in April 2011 on this topic. I will provide the link below, but the major findings include:
1. Unexpected workplace inspections
2. Higher penalties for illegal work
3. Reform employment regulations
4. Work with labor unions
5. Improving education efforts to inform the general public
Link: http://siteresources.worldbank.org/UKRAINEINUKRAINIANEXTN/Resources/455680-1310372404373/PoliciestoReduceInformalEmploymentEng.pdf
please contact Angelica Puricelli here on RG, she is working on the Latin American countries, best, matteo
I am also interested in this subject and for the moment I try to understand some dynamics that seem to be endogenous. It seems that informality is not created only by cost in terms of bureaucracy or social benefits of workers, for example I am noticing that there is a correlation between the degree of education of people working in the infomity and the propensity of people to Stay in that situation. I recommend reading the following abstract for the Peruvian case: http://www.grade.org.pe/upload/publicaciones/archivo/download/pubs/AI13.pdf
We have panel data to see how increase in envelope wages in 201 and 2015 influences envelope wages and formal salaries. Still working on this paper but should not take too long to prepare report.
in Fiji government is providing training and loans for informal activities transition to small and medium enterprises. Still only a tiny few achieve such transition.
Hello, First congrats for this interesting idea, secondly I can tell you about changes of Romanian work legislation with a great impact in reducing the undeclared work in the last years. If you considered important for the project these aspects please let me know to provide you more details about the legislation changes.Best Regards, Ramona
Eugenia, please share the legislative changes here so that everybody can read them. That is the rationale behind ResearchGate, so that we can share learning with each other.
Here there are some examples:
1. The introduction of the single salary employees register, the REVISAL system, as well as the process by which the paper records have been removed from use and replaced with a database created at national level for the storage of all information previously contained by those (i.e.; previous to 2010).
2. The introduction of criminal charges for employers with unregistered employees and more recently is closing the activity of the company.
3. Reducing and simplifying the social contributions (CAS);
4. For the construction sector were approved fiscal facilities (tax exemption and lower social security contributions.
The creation of the REVISAL employment register has also enable risk analysis to be improved when identifying 'risky businesses. I agree.
The simplification of social contributions in Romania, by making the social contributions that employers pay for part-time employees the same as for full-time employees, is more questionable in whether it has reduced undeclared work. It was implemented to reduce under-declared employment (i.e., the payment of envelope wages to formal employees by formal employers). However, there was a significant reduction in part-time employment following the introduction of this legislation, but the increase in full-time employment was not of the same level (if you analyse the results in the REVISAL system). This suggests that some of these under-declared formal employees moved into unregistered employment, thus shifting them from partially undeclared work to wholly undeclared work.
I would be interested to hear more about the construction industry fiscal initiatives. Indeed, I do not know if you know but I am due to visit Cluj Napoca next month to discuss developing new policy initiatives for the Romanian construction industry with the construction trade unions, construction employer federations and the national Labour Inspectorate.
In the case of part-time jobs starting with this year the previously measure (with social contribution equal with full time job) will be eliminated.
Concerning the issue of the tax burden in the case of labor force in Romania we had some measures adopted in the last years for reducing it (for instance decreasing the social contributions for employer, reducing the salary tax from 16% to 10%).
In the construction field are applied some tax facilities approved by EGO 114/2018 and 43/2019 for the Jan, 1, 2019-Dec, 31, 2028. In the case of a gross salary between 3 000 lei and 30 000 lei/ month the employees will be exempt from salary tax (10%) and health contribution (10%), also will be applied some reduction for social security contribution. The employer will pay a less contribution 0.27% instead of 2.25%.
This field has a great exposure to the undeclared work besides with agriculture, after approval of this measures we could expect significant improvements.
Please let me know when exactly you will be in Cluj, I want to invite you at FSEGA, Babes Bolyai University if you have time and availability. I will write you my email address: [email protected] to keep in touch.
Best Regards,
Ramona
In Greece recent legislative measures are appropriate to combat informal work....Tomorrow I will post them
Maybe we can cooperate all together through a report or a scientific article with references to our countries
Let me play Devil's advocate: Your question would strike as absurd the members of groups who already find social and economic satisfaction by investing their energies in informal and underground economies. These secretive, often mobile, groups would meanwhile encourage you, and those many managerial scientists and government bureaucrats who agree with you here, to promote moving work for individuals and groups other than themselves from the informal economy into the formal economy. Achieving this would 1) generate more sources of demand income for themselves by creating more "bullshit job employment" for their potential clients and customers, while 2) removing or reducing the competition in their specialized supply sectors of the local economy. For example, Bullshit Jobs: A Theory, the 2018 book by anthropologist David Graeber is a book that few if any minority ethnic Gypsies in the USA have read, but whose arguments they would -- as masters of informal and underground “gap-filling” between supply and demand within regional economies – intuitively agree with. That is one reason why Gypsy-Americans tend to “home school” their own kids, and yet they meanwhile tend to perceive public schools (particularly in American cities) as dangerous hot houses for nurturing future fools who will labor in desperation for survival wages in the formal gig economy of the future.
I believe, the fundamental transformation of the country from the conventional governance to E-government in general. specifically within the developing countries, which are at low adoption level of E-government. For instance, E-banking, E-voting System, healthcare information system (HIS), Accounting information system (AIS)....etc. Overall, there are enormous researches confirmed that E-government would improve the economy, and decrease corruption.