Title: Evaluating competing theories of informal employment: some lessons from a 28-nation European survey

Authors: Colin C. Williams; Jan Windebank

Addresses: University of Sheffield, Western Bank, Sheffield, South Yorkshire S10 2TN, UK ' University of Sheffield, Western Bank, Sheffield, South Yorkshire S10 2TN, UK

Abstract: Informal employment has been variously explained as resulting from: economic under-development and a lack of modernisation (modernisation theory); high taxes and state interference in the free market (neo-liberal theory) or inadequate levels of state intervention to protect citizens (political economy theory). The aim of this paper is to evaluate these competing theories by comparing the findings of a 2013 survey on the variations in the prevalence of informal employment across 28 nations with cross-national variations in the economic and social characteristics each theory denotes as determinants. The finding is that informal employment is less prevalent in wealthier, modernised societies with higher levels of taxation and social protection expenditure, more effective social transfer systems and lower levels of severe material deprivation. No evidence is thus found to support neo-liberal theory, but evidence is found to support the modernisation and political economy theories. The paper concludes by discussing the theoretical and policy implications.

Keywords: undeclared work; shadow economy; informal economy; tax evasion; tax policy; labour law; labour economics; European Union; informal employment; modernisation theory; neo-liberal theory; political economy theory; taxation levels; social protection expenditure; social transfer systems; severe deprivation.

DOI: 10.1504/IJBG.2015.070223

International Journal of Business and Globalisation, 2015 Vol.15 No.1, pp.45 - 62

Received: 17 Nov 2014
Accepted: 03 Jan 2015

Published online: 26 Jun 2015 *

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