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It is widely assumed that informal sector enterprises have a harmful impact on the performance of formal enterprises. This paper aims to provide an evidence-based evaluation of whether this is the case. To do so, it reports World Bank Enterprise Survey (WBES) data collected from 360 formal enterprises in Bosnia and Herzegovina in 2019. The finding is that formal enterprises viewing informal competition as a severe obstacle do not witness significantly lower sales growth, employment growth or productivity growth. Indeed, such enterprises witness significantly higher sales growth than those who do not view informal sector competitors as a severe obstacle. The theoretical and policy implications are discussed.

Based on the recognition that enterprises operate at different levels of informality, this paper evaluates the determinants of their degree of informalization. To do so, a 2016 survey of the varying degrees of informalization of 171 entrepreneurs in Ghana is reported. The finding is that only 21% of enterprises were wholly informal and 16% wholly formal. Nearly two-thirds (63%) were neither wholly informal nor wholly formal. Higher levels of informalization are significantly associated with younger entrepreneurs, those with lower levels of educational attainment, lower household incomes and younger enterprises. It is also significantly associated with the wider institutional compliance environment. Higher levels of informality are present among entrepreneurs unaware of the need for registration, who lack vertical trust (i.e., do not believe the state does anything for them, and perceive there to be public sector corruption), view informality as normal (i.e., a normal practice in their family) and view all similar businesses as operating informally (i.e., lack horizontal trust). The paper concludes by discussing the theoretical and policy implications.

The aim of this paper is to investigate whether the future firm performance of formal enterprises that started-up unregistered and spent longer unregistered are significantly different to those that registered at the outset. Reporting World Bank Enterprise Survey data on 3,420 formal enterprises from eleven countries in the Middle East and North Africa (MENA) region, and controlling for other determinants of firm performance as well as the endogeneity of the registration decision using the Heckman selection model, the finding is that unregistered firms at start-up witness lower sales and productivity growth but higher employment growth rates. The effect of the registration decision on future performance thus depends on the performance indicator analysed. The theoretical implications are then discussed along with the limitations and future research required.

Whilst entrepreneurship has traditionally been seen as solely an economic pursuit, increasingly a complementary view has emerged, viewing entrepreneurship as a contextualised ‘social practice’—recognising how forms of entrepreneurship, taking place in everyday life, are situated in specific social contexts in which entrepreneurs are embedded. This paper contributes to on-going debates in the sub-fields of informal and ethnic entrepreneurship by outlining the heterogeneous nature of entrepreneurial practices amongst Ukrainian immigrants in the UK. The chapter highlights how individuals mobilise different forms of capital in developing their informal entrepreneurial practices, often utilising capital acquired in Ukraine to facilitate entrepreneurial practices in the UK and vice-versa using capital acquired in the UK to assist business ventures in Ukraine. The paper’s findings contribute to on-going debates by highlighting that the motivations of such entrepreneurs are driven out of opportunity as much as necessity. The chapter concludes by reflecting on the ramifications for policy and directions for further research.

The aim of this paper is to evaluate critically four competing theories that variously explain informal sector entrepreneurship as a traditional activity that has not yet been incorporated into the modern system (modernization theory), a form of production integral to contemporary capitalism conducted by marginalized population groups as a survival strategy (structuralist theory), a voluntarily chosen endeavor and popular reaction to excessive regulation by the state (neo[Formula: see text]liberal theory) or a voluntarily chosen practice conducted for social, redistributive, political resistance or identity reasons (post-structuralist theory). Reporting the results of face[Formula: see text]to[Formula: see text]face interviews with 215 informal entrepreneurs in Zamfara, a tropical region in Nigeria, the finding is that no one theory is universally valid. Instead, each theory is valid in relation to different groups of entrepreneur and only by combining all of them can a finer-grained and more nuanced explanation of the complex and heterogeneous character of informal sector entrepreneurship be achieved.

Across the member states of the European Union and beyond, paid transactions occur that are not declared to the state for tax, social security and/or labour law purposes when they should be declared. This is not a minority practice. The undeclared economy is estimated to be equivalent to 17.9 per cent of the EU28 GDP in 2016. Similarly, it is estimated that 9.3 per cent of total labour input in the private sector in the EU28 is undeclared and that undeclared work constitutes on average 14.3 per cent of gross value added in the private sector. Furthermore, in 2013, 4 per cent of EU28 citizens admitted that they have conducted undeclared work in the 12 months prior to the survey. However, this percentage might be underestimated, given that respondents might not answer honestly about illegal work practices. Tackling the undeclared economy has thus become a core issue on the policy agendas of supra-national agencies and governments. Addressing this practice is important because it results in lost public revenues, a worsening of working conditions, and unfair competition for legitimate businesses. How, therefore, can the undeclared work be tackled? Reviewing the policy measures used by governments, two distinct approaches are identified, namely a rational economic actor approach that tackles undeclared work by ensuring that the payoff from undeclared work is outweighed by the costs, which is heavily used, and a social actor approach grounded in a view that undeclared work arises when horizontal and vertical trust are low, which is used to a lesser extent. The purpose of this policy brief is to review the policies that can help EU Member States reduce the share of undeclared work and focuses on evaluating the effectiveness of the rational economic actor approach.

In recent years, a new institutionalist theory has emerged to explain the prevalence of informal sector entrepreneurship. This argues that formal institutional failures lead to the emergence of an asymmetry between the formal rules (laws and regulations) and the norms, values and beliefs of entrepreneurs regarding the acceptability of participating in the informal sector, which in turn leads to the prevalence of informal entrepreneurship. The aim of this paper is to evaluate this social actor approach by reporting evidence from 453 face-to-face interviews with a nationally representative sample of entrepreneurs in FYR Macedonia. This reveals not only a significant association between participation in the informal economy and the non-alignment of entrepreneurs’ views with the formal rules, but specific formal institutional failings that are significantly associated with the acceptability of informal entrepreneurship, namely poor quality public services, a lack of tax fairness, corruption and instability in the formal institutions. The theoretical and policy implications are then discussed.

In recent decades, a burgeoning literature has brought out of the shadows the magnitude of the undeclared economy. This reveals that the undeclared economy is a persistent feature of contemporary economies. With the equivalent of 17.9 per cent of GDP not declared to the authorities in the European Union in 2016, undeclared work representing 14.3 per cent of gross value added in the private sector in 2013, and 4 per cent of EU28 citizens conducting undeclared work, tackling the undeclared economy is not some minor issue. Addressing this practice is important. This is not only because of the income lost by governments which could otherwise pay for improving the countries` structural conditions. The undeclared economy also results in poorer quality working conditions for employees and causes unfair competition for legitimate businesses. What measures, therefore, can be used to tackle undeclared work? Surveying the policy measures used by governments, two approaches are identified, namely a rational economic actor approach that aims to tackle undeclared work by ensuring that the cost of undeclared work is higher than its benefits, and a social actor approach which aims to tackle undeclared work by building trust between the citizens and between the citizens and government. The purpose of this policy brief is to review the policies that can help EU Member States reduce the share of undeclared work and focuses on evaluating the effectiveness of the social actor approach.

Resumen Dado el predominio de la informalidad en el mundo, el autor propone una clasificacion de los paises segun el grado y la intensidad de la misma, y no por la composicion de su economia formal. A partir de datos de la OIT de 36 paises en desarrollo, muestra que existe una correlacion significativa entre el grado y la intensidad de la informalizacion en los paises e indicadores sociales y economicos como el PIB per capita, la corrupcion, la pobreza, los impuestos y las cotizaciones sociales. Concluye destacando las aportaciones teoricas y de politicas del estudio.

The informal economy accounts for the bulk of employment in many emerging economies. Regulation theory suggests that all economic activity is characterized by a complex combination of formal and informal regulation. Looking at the case of Mozambique, this article explores the pressures towards and against formalization, and the forms regulation can take, drawing on qualitative research based on in-depth elite interviews and observation. The findings highlight how the State's role in promoting formalization of the informal economy is ambivalent; its approach incorporates both “progressive” elements, which focus on the modernization of regulations and institutions, and “conservative” elements, which inhibit this process of change.

Resumen La economia informal representa la mayor parte del empleo en muchas economias emergentes. Segun la teoria de la regulacion, toda actividad economica se regula por un complejo engranaje de mecanismos formales e informales. A partir del caso de Mozambique, este articulo explora las presiones a favor y en contra de la formalizacion y las formas que puede tomar la regulacion, sobre la base de una investigacion cualitativa consistente en entrevistas en profundidad a personal directivo y observaciones. Los resultados revelan la ambivalencia del Estado al respecto, con actuaciones «progresistas», centradas en la modernizacion de normativas e instituciones, y otras «conservadoras» que inhiben el proceso de formalizacion.

Resume Compte tenu de l'importance des activites informelles, l'auteur propose de classer les pays selon les dimensions de l'emploi dans l'economie informelle plutot que selon la composition de l'economie formelle. A partir de donnees du BIT portant sur trente-six pays en developpement, il fait apparaitre une correlation significative entre l'etendue et l'intensite de l'informalite et differents indicateurs sociaux et economiques: PNB par habitant, degre de corruption et de pauvrete et niveau de l'impot et des cotisations sociales. Les implications de ces resultats pour la reflexion theorique et l'action sont ensuite exposees.

Resume L'economie informelle fournit l'essentiel de l'emploi dans nombre de pays emergents. Selon la theorie de la regulation, l'activite economique est regie par un ensemble complexe de regles formelles et informelles. Les auteurs examinent, a partir du cas du Mozambique, les elements qui favorisent ou entravent la transition vers l'economie formelle, ainsi que les diverses formes de regulation, en s'appuyant sur une enquěte qualitative conjuguant observation directe et entretiens avec des personnalites locales. Les donnees recueillies font apparaitre un role ambivalent de l'Etat, qui se montre parfois volontariste et soucieux de reformer la reglementation et les institutions et parfois partisan du statu quo.

Given the prevalence of informality, this article proposes a typology for classifying countries by the extent and nature of employment in the informal economy, rather than by the composition of their formal economies. The author analyses ILO data on employment in the informal economy in 36 developing countries, and shows that there is a significant correlation between cross-national variations in the degree and intensity of informalization and cross-national variations in social and economic indicators such as levels of GNP per capita, corruption, poverty, taxation and social contributions. The article concludes by discussing implications for theory and policy.

This article evaluates critically the competing explanations for informal sector entrepreneurship that read such endeavours to result from either ‘exclusion’ from state benefits and the circuits of the modern economy or the voluntary ‘exit’ of workers from formal institutions. Reporting evidence from a 2003 survey in urban Brazil, it is revealed that similar proportions of informal sector entrepreneurs explain their participation to result from their involuntary exclusion and voluntary exit from the formal economy. The outcome is a call to shift from an either/or to a both/and approach when explaining informal sector entrepreneurship and for wider research on the relative weightings given to exit and exclusion in different contexts so as to develop a socio-spatially contingent explanation for participation in informal sector entrepreneurship across the globe.

The aim of this paper is to evaluate the validity of the ‘marginalisation thesis’, which holds that marginalised populations are more likely to participate in the undeclared economy, in relation to Nordic societies. To do this, a 2013 special Eurobarometer survey is reported on who engages in undeclared work conducted in three Nordic nations, namely Denmark, Finland and Sweden involving 3,013 face-to-face interviews. Using multilevel mixed-effects logistic regression analysis, the finding is that the marginalisation thesis is valid in relation to some marginalised populations, namely those having difficulties paying their household bills, younger age groups, those defining themselves as working class and those who hold non-conformist norms, values and beliefs on tax compliance. Other marginalised populations however, including the unemployed, those living in rural areas and with less formal education, are revealed to be no more likely to engage in undeclared work than the employed, those in urban areas and with more years in education. Yet others marginalised populations, including women and people living in less affluent Nordic nations, are significantly less likely to participate in the undeclared economy than men and those living in more affluent Nordic countries, thus supporting the reinforcement thesis that undeclared work reinforces, rather than reduces, the disparities produced by the declared economy. The outcome is a call for a more nuanced understanding of the marginalisation thesis as valid for some marginalised populations but not others. The paper concludes by discussing the implications for theory and policy of this more variegated assessment of the marginalisation thesis.

The aim of this paper is to better understand cross-national variations in the informalisation of employment by evaluating critically three contrasting explanations which variously represent informal employment as more prevalent in: poorer under-developed economies (modernisation thesis); societies with high taxes, corruption and state interference in the free market (neo-liberal thesis) and societies with inadequate levels of state intervention to protect workers (political economy thesis). To evaluate these rival explanations, the relationship between the variable informalisation of employment in 10 Central and East European countries, measured using data from a 2007 Eurobarometer cross-national survey involving 5769 face-to-face interviews, and their broader work and welfare regimes are analysed. The finding is that wealthier, less corrupt and more equal societies and those possessing higher levels of taxation, social protection and effective redistribution via social transfers are significantl...

Analysing a 2013 survey of the informal economy in six Southeast European nations, this paper reveals how such tax non-compliance arises when the codified laws and regulations of a society’s formal institutions are not aligned with the norms, values and beliefs of citizens (its informal institutions). Tackling the informal economy is therefore shown to require a re-aligning of a society’s formal and informal institutions. This necessitates not only changing citizens’ norms, values and beliefs using, for example, tax education campaigns, but also changing the formal institutions to improve trust in government. The wider theoretical and policy implications are then discussed.

Purpose– The purpose of this paper is to advance a new way of explaining and tackling the illegitimate wage practice where employers pay their employees an undeclared (envelope) wage in addition to their formal salary. Drawing upon institutional theory, it is here proposed that envelope wages result from the lack of alignment of a society’s formal institutions (i.e. the codified laws and regulations) with its informal institutions (i.e. the socially shared unwritten understandings which reflect citizens’ norms, values and beliefs).Design/methodology/approach– To evaluate this, data are reported from a 2013 Eurobarometer survey involving 1,738 face-to-face interviews with formal employees in four Baltic countries, namely, Estonia, Latvia, Lithuania and Poland.Findings– The finding is that the greater is the asymmetry between the formal and informal institutions (i.e. the level of disagreement of citizens with the codified laws and regulations of formal institutions), the higher is the propensity to pay envelope wages. This is the case at both the individual- and country levels.Practical implications– To reduce the prevalence of envelope wages, the resultant argument is that the values of employers and employees need to be aligned with the formal institutions. This requires alterations not only in the informal institutions, using measures such as tax education, awareness raising campaigns and normative appeals, but also changes in formal institutions so as to improve trust in government by fostering greater procedural justice, procedural fairness and redistributive justice.Originality/value– This is the first paper to apply institutional theory to explaining and tackling envelope wages in the Baltic Sea region.

Purpose– The purpose of this paper is to evaluate critically the competing explanations for the cross-national variations in the scale of informal employment which variously correlate higher levels of informal employment with economic under-development (“modernization” theory), corruption, higher taxes and state interference (“neo-liberal” theory) and inadequate state intervention to protect workers from poverty (“structuralist” theory).Design/methodology/approach– To do this, data on the prevalence of informal employment collected by the International Labour Organisation using a common survey method across 41 less developed economies are analysed and compared using bivariate regressions with World Bank development indicators.Findings– Some 34.4 per cent of the non-agricultural workforce is in informal employment across these 41 countries, with the share in informal employment ranging from 83.6 per cent in India to 6.1 per cent in Serbia. Evaluating critically the competing explanations, a call is made for a synthesis of the modernisation and structuralist theoretical perspectives in a new “neo-modernisation” theory that tentatively associates higher levels of informal employment with economic under-development, smaller government and inadequate state intervention to protect workers from poverty.Research limitations/implications– Based on 41 cases, a multivariate regression analysis was not possible to determine how important each characteristic is to the final outcome whilst controlling for the other characteristics.Practical implications– This paper tentatively displays that wider economic and social policies, such as social protection, are significantly correlated with the level of informal employment.Originality/value– This is the first paper to use a direct survey to analyse and explain cross-national variations in informal employment in less developed economies.

Drawing inspiration from institutional theory, a small sub-stream of literature has proposed that participation in the informal economy arises from the lack of alignment of a society’s formal institutions (i.e. its codified laws and regulations) with its informal institutions (i.e. the norms, values and beliefs of its population). To further advance this explanation, this article reports a 2013 Eurobarometer survey involving 27,563 face-to-face interviews across 28 European countries. The finding is that there is a strong association between the degree to which formal and informal institutions are unaligned and participation in the informal economy. The greater is the asymmetry between the formal and informal institutions, the more likely is participation in the informal economy at the individual-, population group- and country-level. A new policy approach for tackling the informal economy which focuses upon reducing this institutional incongruence is then discussed.

Purpose– The purpose of this paper is to evaluate which groups of the self-employed engage in the informal economy. Until now, self-employed people participating in the informal economy have been predominantly viewed as marginalised populations such as those on a lower income and living in deprived regions (i.e. the “marginalisation thesis”). However, an alternative emergent “reinforcement thesis” conversely views the marginalised self-employed as less likely to do so. Until now, no known studies have evaluated these competing perspectives.Design/methodology/approach– To do this, the author report a 2013 survey conducted across 28 countries involving 1,969 face-to-face interviews with the self-employed about their participation in the informal economy.Findings– Using multilevel mixed-effects logistic regression analysis, the finding is that the marginalisation thesis applies when examining characteristics such as the age, marital status, tax morality, occupation and household financial circumstances of the self-employed engaged in the informal economy. However, when gender and regional variations are analysed, the reinforcement thesis is valid. When characteristics such as the urban-rural divide and educational level are analysed, no evidence is found to support either the marginalisation or reinforcement thesis.Research limitations/implications– The outcome is a call for a more nuanced understanding of the marginalisation thesis that the self-employed participating in the informal economy are largely marginalised populations.Originality/value– This is the first extensive evaluation of which self-employed groups participate in the informal economy.

The aim of this paper is to evaluate contrasting policy approaches towards undeclared work. To do so, evidence is reported from 1,000 face-to-face interviews conducted in Croatia during 2013. Logistic regression analysis reveals no association between participation in undeclared work and the perceived level of penalties and risk of detection, but a strong association between participation in undeclared work and the level of tax morality. It thus confirms recent calls for the conventional direct controls approach, which seeks to deter engagement in undeclared work by increasing the penalties and risk of detection, to be replaced by an indirect controls approach which seeks to improve tax morality so as to encourage greater self-regulation and a culture of commitment to compliance. The implications for theory and policy are then discussed.

This paper proposes that the prevalence of illegitimate wage practices in Southern European societies results from the discord between the formal rules (formal institutions) and the socially shared unwritten rules that reflect citizens' beliefs (informal institutions). To evaluate this, a 2013 survey is reported on whether employers in five Southern European countries fraudulently evade tax and social security payments by paying employees a portion of their salary off the books. A strong association is revealed between the extent of wage under-reporting and the degree of institutional asymmetry across these societies. The implications for theorising illegitimate wage practices are then explored.

The aim of this article is to evaluate the competing theories that variously explain the greater prevalence of undeclared employment in some countries either as: a legacy of under-development; a result of the voluntary exit from declared employment due to the high taxes, state corruption and burdensome regulations and controls, or a product of a lack of state intervention in work and welfare which leads to the exclusion of workers from the declared economy and state welfare provision. Analyzing the cross-national variations in the prevalence of, and reasons for, undeclared employment across the European Union using evidence from a 2007 Eurobarometer survey, the finding is that undeclared employment is less prevalent and more of the voluntary variety in wealthier, less corrupt and more equal societies possessing higher levels of social protection and redistribution via social transfers. The theoretical and policy implications are then discussed.

Purpose– The purpose of this paper is to evaluate critically the “marginalisation” thesis, which holds that marginalised populations disproportionately participate in undeclared work. Until now, the evidence that participation in undeclared work is higher in marginalised areas (e.g. peripheral rural localities) and marginalised socio-economic groups (e.g. the unemployed, immigrant populations and women) has come from mostly small-scale surveys of particular localities and population groups. There have been no extensive quantitative surveys. Here, the intention is to fill this gap.Design/methodology/approach– To do this, we report a 2007 survey of participation in undeclared work involving 26,659 face-to-face interviews conducted in 27 European Union (EU) member states.Findings– The finding is that the marginalisation thesis is valid when discussing younger people and those living in peripheral rural areas; they are more likely to participate in undeclared work. However, there is no significant association between immigrant populations and participation in undeclared work. Moreover, a reinforcement thesis, which holds that the undeclared economy reinforces the spatial and socio-economic disparities produced by the declared economy, applies when considering those with fewer years in education, women, the unemployed and less affluent European regions; they have lower participation rates than higher educated people, men, the employed and affluent European regions.Research limitations/implications– The outcome is a call for a more nuanced understanding of the marginalisation thesis as valid for some marginalised populations but not others. Whether similar findings prevail at other spatial scales and in other global regions now needs investigating.Practical implications– This survey displays that although it is appropriate to target some marginalised populations when tackling undeclared work, this is not valid for others (e.g. immigrant populations, the unemployed, those living in less affluent EU regions).Originality/value– The first extensive evaluation of whether marginalised populations are more likely to participate in undeclared work.

Over the past decade or so, two competing theoretical perspectives have arisen that explain participation in informal entrepreneurship as resulting from either too little or too much state intervention. To evaluate these competing explanations critically, the authors report on a 2012 UK survey of 595 small business owners. Twenty per cent of these owners said that they had traded informally when starting up their ventures, and the authors examine and evaluate their reasons for doing so. It was found that 41% of the entrepreneurs attributed their off-the-books trading to too little state intervention (for example, a lack of government advice and support), 35% to too much intervention (burdensome red tape, high taxes, etc) and 24% to a mix of both factors. However, a multivariate analysis displays significant socio-demographic, firm-level and regional variations in the reasons. The outcome is a call to move towards more nuanced context-bound explanations of entrepreneurship in the informal economy.

The aim of this article is to evaluate competing theories that variously explain the greater prevalence of envelope wages in some countries either as: a legacy of under-development (modernisation thesis); due to high taxes, state corruption and burdensome regulations and controls (neo-liberal thesis), or a result of inadequate state intervention in work and welfare arrangements, which leaves workers less than fully protected (political economy thesis). Reporting a 2013 survey of cross-national variations in the prevalence of envelope wages, the finding is that the results refute the neo-liberal thesis but support both the modernisation and political economy theses, revealing that this illegitimate wage practice is more common in poorer, less equal countries with lower taxation and social protection levels and less effective redistribution via social transfers. The theoretical and policy implications are then discussed.