IDEAS home Printed from
   My bibliography  Save this article

The underground economy in Spain: an alternative to unemployment?


  • Namkee Ahn
  • Sara La De Rica


This paper analyses the factors which determine whether an individual works in the formal sector, in the informal sector, or remains unemployed in the Spanish labour market. We highlight the implications of high unemployment on an individual's decision to work in the underground economy. We postulate that an individual decides (or is chosen) whether to work in the formal sector or not in a first stage and, if not, in a second stage decides whether to work in the underground sector or to remain unemployed. We estimate a bivariate probit model which controls for selectivity bias in the second stage. The result indicates on the one hand, that heads of household, who benefit more from social security provisions obtained in formal sector jobs, are more likely to work in such sector than others. Besides, demand restrictions seem to operate as well-individuals with higher education have easier access to the formal sector. On the other hand, among those who do not work in the formal sector, the probability of working in the informal sector relative to being unemployed is higher among those whose head of household works. For females, the probability of staying unemployed (relative to working in the informal sector) increases with education, suggesting that highly educated women prefer to search for a formal sector job rather than to work in the underground economy. We also examine the job search behaviour among the informal sector workers.

Suggested Citation

  • Namkee Ahn & Sara La De Rica, 1997. "The underground economy in Spain: an alternative to unemployment?," Applied Economics, Taylor & Francis Journals, vol. 29(6), pages 733-743.
  • Handle: RePEc:taf:applec:v:29:y:1997:i:6:p:733-743
    DOI: 10.1080/000368497326660

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Amjad, Rashid, 1984. "The management of Pakistan's economy 1947-82," MPRA Paper 35850, University Library of Munich, Germany.
    2. Amjad, Rashid, 1987. "Human resource development: the Asian experience in employment and manpower planning - an overview," MPRA Paper 38135, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Fugazza, Marco & Jacques, Jean-Francois, 2004. "Labor market institutions, taxation and the underground economy," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 395-418, January.
    2. Kolm, Ann-Sofie & Larsen, Birthe, 2001. "Wages, Unemployment, and the Underground Economy," Working Paper Series 2001:8, Uppsala University, Department of Economics.
    3. Giorgio Gobbi & Roberta Zizza, 2007. "Does the Underground Economy Hold Back Financial Deepening? Evidence from the Italian Credit Market," CEP Discussion Papers dp0789, Centre for Economic Performance, LSE.
    4. Jose Maria Serrano & Maria Dolores Gadea, 2005. "What causes the hidden economy in Spain?," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 1(3), pages 143-150, May.
    5. Perotti, Valeria & Sánchez Puerta, Maria Laura, 2009. "Personal Opinions about the Social Security System and Informal Employment : Evidence from Bulgaria," Social Protection and Labor Policy and Technical Notes 89563, The World Bank.
    6. Amuedo Dorantes, Catalina & De la Rica Goiricelaya, Sara, 2005. "Immigrants Responsiveness to Labor Market Conditions," DFAEII Working Papers 2005-03, University of the Basque Country - Department of Foundations of Economic Analysis II.
    7. Diego Martinez-Lopez, 2013. "The underreporting of income by self-employed workers in Spain," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(4), pages 353-371, November.
    8. Frederiksen, Anders & Graversen, Ebbe Krogh & Smith, Nina, 2005. "Tax evasion and work in the underground sector," Labour Economics, Elsevier, vol. 12(5), pages 613-628, October.
    9. Ann-Sofie Kolm & Birthe Larsen, 2002. "Social Norm, the Informal Sector, and Unemployment," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 59(3), pages 407-407, August.
    10. Michael Pickhardt & Jordi Sardà, 2015. "Size and causes of the underground economy in Spain: a correction of the record and new evidence from the MCDR approach," European Journal of Law and Economics, Springer, vol. 39(2), pages 403-429, April.
    11. Markandya, Anil & González-Eguino, Mikel & Escapa, Marta, 2013. "From shadow to green: Linking environmental fiscal reforms and the informal economy," Energy Economics, Elsevier, vol. 40(S1), pages 108-118.
    12. Roberto Dell'Anno & Offiong Helen Solomon, 2008. "Shadow economy and unemployment rate in USA: is there a structural relationship? An empirical analysis," Applied Economics, Taylor & Francis Journals, vol. 40(19), pages 2537-2555.
    13. Namkee Ahn & José Ignacio García-Pérez, 2002. "Unemployment duration and workers' wage aspirations in Spain," Spanish Economic Review, Springer;Spanish Economic Association, vol. 4(2), pages 103-118.
    14. Amuedo-Dorantes, Catalina & de la Rica, Sara, 2005. "Immigrants' Responsiveness to Labor Market Conditions and Its Implications on Regional Disparities: Evidence from Spain," IZA Discussion Papers 1557, Institute for the Study of Labor (IZA).
    15. Afonso, Oscar, 2012. "The impact of public goods and services and public R&D on the non-observed economy size, wages inequality and growth," Economic Modelling, Elsevier, vol. 29(5), pages 1996-2004.
    16. Tilman Bruck & John P. Haisken-De New & Klaus Zimmermann, 2006. "Creating low skilled jobs by subsidizing market-contracted household work," Applied Economics, Taylor & Francis Journals, vol. 38(8), pages 899-911.
    17. Angel Alanon & M. Gomez-Antonio, 2005. "Estimating the size of the shadow economy in Spain: a structural model with latent variables," Applied Economics, Taylor & Francis Journals, vol. 37(9), pages 1011-1025.
    18. Albu, Lucian-Liviu & Nicolae, Mariana, 2003. "Use of households survey data to estimate the size of the informal economy in Romania," MPRA Paper 14286, University Library of Munich, Germany.
    19. David Howden, 2011. "Europe’s Unemployment Crisis: Some Hidden Relief?," Chapters,in: Institutions in Crisis, chapter 4 Edward Elgar Publishing.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:29:y:1997:i:6:p:733-743. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.