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Labor Market Institutions and Their Impact on Shadow Economies in Europe

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  • Kamila Fialová
  • Ondrej Schneider

Abstract

This paper analyzes the role of labor market institutions in explaining developments of shadow economies in European countries. We use several alternative measures of the shadow sector to examine the effects of labor market institutions on shadow sector in two specific regions, the old and the new European Union member states. Comparing alternative measures of the shadow sector allows a more granulated analysis of the effects of labor market institutions. Our results indicate that the one institution that unambiguously increases shadow economy is the strictness of employment protection legislation. Other labor market institutions have less straightforward and statistically robust effects, and their impact often differs in the old and new EU member states.

Suggested Citation

  • Kamila Fialová & Ondrej Schneider, 2014. "Labor Market Institutions and Their Impact on Shadow Economies in Europe," Review of Economics and Institutions, Università di Perugia, vol. 5(1).
  • Handle: RePEc:pia:review:v:5:y:2014:i:1:n:3
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    1. On Black Money, Corruption, and Demonetization
      by paragwaknis in Musings of the Sorts on 2016-12-29 09:03:07

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    Cited by:

    1. Stefan Petranov & Maria St. Ivanova, 2017. "Social Security Floors and Informal Employment: the Case of Bulgaria," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 21-40.
    2. Ann-Sofie Kolm & Birthe Larsen, 2019. "Underground activities and labour market performance," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(1), pages 41-70, February.
    3. Hazans, Mihails, 2011. "What explains prevalence of informal employment in European countries : the role of labor institutions, governance, immigrants, and growth," Policy Research Working Paper Series 5917, The World Bank.
    4. Hazans, Mihails, 2011. "Informal Workers across Europe: Evidence from 30 Countries," IZA Discussion Papers 5871, Institute of Labor Economics (IZA).
    5. Davidescu, Adriana Anamaria & Schneider, Friedrich, 2017. "Nature of the Relationship between Minimum Wage and the Shadow Economy Size: An Empirical Analysis for the Case of Romania," IZA Discussion Papers 11247, Institute of Labor Economics (IZA).
    6. World Bank, 2011. "Employment Protection Legislation and Labor Market Outcomes : Theory, Evidence and Lessons for Croatia," World Bank Publications - Reports 12902, The World Bank Group.
    7. Ioana M. PETRESCU, 2016. "The Effects of Economic Sanctions on the Informal Economy," Management Dynamics in the Knowledge Economy, College of Management, National University of Political Studies and Public Administration, vol. 4(4), pages 623-648, December.
    8. Indermit Gill & Johannes Koettl & Truman Packard, 2013. "Full employment: a distant dream for Europe," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-34, December.

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    More about this item

    Keywords

    labor market institutions; shadow economy; shadow employment; European Union;
    All these keywords.

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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