What Explains Prevalence of Informal Employment in European Countries : The Role of Labor Institutions, Governance, Immigrants, and Growth
This paper looks into institutional and other macro determinants of prevalence of informal dependent employment, as well as informal self-employment, in European countries, using European Social Survey data on work without legal contract in on 30 c...
| Main Author: | |
|---|---|
| Language: | English |
| Published: |
2012
|
| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20111214174555 http://hdl.handle.net/10986/3687 |
| Summary: | This paper looks into institutional and
other macro determinants of prevalence of informal dependent
employment, as well as informal self-employment, in European
countries, using European Social Survey data on work without
legal contract in on 30 countries, covering years 2004-2009.
Consistently with theoretical predictions, quality of
business environment has a significant negative impact on
prevalence of both types of informal employment. The share
of non-contracted employees is negatively affected by
perceived quality of public services and positively related
to economic growth. Informal self-employment is positively
related to growth in Europe at large, as well as in Eastern
and Southern Europe. The level of GDP per capita also has a
positive impact on the prevalence of informal employment in
Europe at large and within Eastern and Southern Europe,
whilst an opposite effect is found in Western and Northern
Europe. Other things equal, the share of non-contracted
employees in the labor force across European countries
increases with the minimum-to-average wage ratio, with union
density, with the share of first and second generation
immigrants, and with income inequality, but falls with
stricter employment protection legislation (EPL) and higher
tax wedge on labor. Thus it appears that in Europe at large,
labor cost effects of EPL and taxes are weaker than their
impact via perceptions of job security and law enforcement,
along with tax morale and the income effect. Yet the EPL
effect on informality is positive (i.e., cost-related) when
either Eastern and Southern Europe or Western and Northern
Europe are considered separately. Furthermore, within
Western and Northern Europe, the minimum wage effect is
negative, whilst within Eastern and Southern Europe, the
union effect is negative; in both cases, we offer a supply
side explanation. |
|---|