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Out of the shadows: a classification of economies by the size and character of their informal sector

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  • Colin C Williams

Abstract

Given that 60 per cent of the global workforce is in the informal sector, this article develops a typology that classifies economies according to, firstly, where different countries sit on a continuum of informalization and, secondly, the character of their informal sectors. This is then applied to the economies of the 27 member states of European Union (EU-27). Finding a clear divide from east to west and south to north in the EU-27, with the more informalized and wage-based informal economies on the eastern/southern side and the less informalized and more own-account informal economies on the western/Nordic side, it is then revealed that formalization and more own-account informal sectors are significantly correlated with wealthier and more equal (as measured by the gini-coefficient) countries in which there is greater labour market intervention, higher levels of social protection and more effective redistribution via social transfers. The article concludes by discussing the implications for theory and practice.

Suggested Citation

  • Colin C Williams, 2014. "Out of the shadows: a classification of economies by the size and character of their informal sector," Work, Employment & Society, British Sociological Association, vol. 28(5), pages 735-753, October.
    • Handle: RePEc:sae:woemps:v:28:y:2014:i:5:p:735-753
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    Cited by:

    1. Colin C. Williams & Ioana A. Horodnic, 2015. "Explaining and tackling the shadow economy in Estonia, Latvia and Lithuania: a tax morale approach," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 15(2), pages 81-98.
    2. Bögenhold, Dieter & Klinglmair, Andrea, 2016. "Organizations, Occupations and Decentral Work: On Hybridity and Ambiguity of Own-Account Workers," MPRA Paper 76860, University Library of Munich, Germany.
    3. Erhardt, Eva, 2017. "Microfinance beyond self-employment: Evidence for firms in Bulgaria," MPRA Paper 79294, University Library of Munich, Germany.
    4. Ioana Alexandra Horodnic & Colin C. Williams & Oana Țugulea & Iuliana Claudia Stoian Bobâlcă, 2022. "Exploring the Demand-Side of the Informal Economy during the COVID-19 Restrictions: Lessons from Iași, Romania," Sustainability, MDPI, vol. 14(12), pages 1-16, June.
    5. Colin C. Williams & Slavko Bezeredi, 2018. "Evaluating Policy Approaches Towards Undeclared Work: Some Lessons from FYR of Macedonia," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 16(2), pages 171-187.
    6. Andrea Fracasso & Giuseppe Vittucci Marzetti & Diego Coletto, 2018. "Informal economy and extractive institutions," Review of Economics and Institutions, Università di Perugia, vol. 9(1).
    7. Beatriz Maria Braga & Eduardo Camargo Oliva & Edson Keyso Miranda Kubo & Steve McKenna & Julia Richardson & Terry Wales, 2021. "An Institutional Approach to Ethical Human Resource Management Practice: Comparing Brazil, Colombia and the UK," Journal of Business Ethics, Springer, vol. 169(1), pages 57-76, February.
    8. Pankaj C. Patel & Cornelius A. Rietveld & Jack I. Richter, 2022. "The relation between public assistance and self-employment in census tracts: a long-term perspective," Journal of Evolutionary Economics, Springer, vol. 32(3), pages 891-927, July.
    9. Williams Colin C, 2019. "Explaining and tackling the informal economy: an evaluation of competing perspectives," Open Economics, De Gruyter, vol. 2(1), pages 63-75, January.
    10. McGinnity, Frances & Russell, Helen & Privalko, Ivan & Enright, Shannen & O'Brien, Doireann, 2021. "Monitoring decent work in Ireland," Research Series, Economic and Social Research Institute (ESRI), number BKMNEXT414, June.
    11. Colin C. Williams & Ioana Alexandra Horodnic & Jan Windebank, 2017. "Evaluating the internal dualism of the informal sector: evidence from the European Union," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 44(4), pages 605-616, September.
    12. Colin C Williams & Ioana A Horodnic, 2017. "Evaluating the policy approaches for tackling undeclared work in the European Union," Environment and Planning C, , vol. 35(5), pages 916-936, August.
    13. Nikolaus Hammer & Réka Plugor, 2019. "Disconnecting Labour? The Labour Process in the UK Fast Fashion Value Chain," Work, Employment & Society, British Sociological Association, vol. 33(6), pages 913-928, December.
    14. Erhardt, Eva Christine, 2017. "Microfinance beyond self-employment: Evidence for firms in Bulgaria," Labour Economics, Elsevier, vol. 47(C), pages 75-95.
    15. Jeisson Cárdenas & Jaime Montana & Derek Bosworth, 2021. "Which Workers are Most Exposed to covid -19 and Social Distancing Effects in a Dual Labour Market?," Revista de Economía del Rosario, Universidad del Rosario, vol. 24(2), December.
    16. Fallon, Kathleen M. & Mazar, Alissa & Swiss, Liam, 2017. "The Development Benefits of Maternity Leave," World Development, Elsevier, vol. 96(C), pages 102-118.
    17. Colin C. Williams & Abbi M. Kedir, 2019. "Explaining cross-country variations in the prevalence of informal sector competitors: lessons from the World Bank Enterprise Survey," International Entrepreneurship and Management Journal, Springer, vol. 15(3), pages 677-696, September.
    18. Salahodjaev, Raufhon, 2015. "Intelligence and Shadow Economy: a Cross-Country Empirical Assessment," MPRA Paper 61976, University Library of Munich, Germany.
    19. Williams Colin C. & Horodnic Ioana A., 2015. "Explaining The Prevalence Of The Informal Economy In The Baltics: An Institutional Asymmetry Perspective," European Spatial Research and Policy, Sciendo, vol. 22(2), pages 127-145, December.
    20. Colin C. Williams & Youssef Youssef, 2014. "Combating Informal Employment in Latin America: A Critical Evaluation of the Neo-Liberal Policy Approach," Research in World Economy, Research in World Economy, Sciedu Press, vol. 5(2), pages 1-13, September.
    21. Mariña Fernández-Reino & Jonas Radl & María Ramos, 2018. "Employment Outcomes of Ethnic Minorities in Spain: Towards Increasing Economic Incorporation among Immigrants and the Second Generation?," Social Inclusion, Cogitatio Press, vol. 6(3), pages 48-63.

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