IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_12115.html

The Perverse Effect of Flexible Work Arrangements on Informality

Author

Listed:
  • Edoardo Di Porto
  • Pietro Garibaldi
  • Giovanni Mastrobuoni
  • Paolo Naticchioni

Abstract

Flexible work arrangements (FWAs) are often promoted as a means to regularise informal labour. Utilising unique Italian administrative data that links employer-employee records, daily voucher usage by firms, and randomly timed labour inspections (2014-2017), we demonstrate that FWAs can also hinder enforcement and increase undeclared work. We document that, upon inspection, some firms validate undeclared work with FWAs on the spot, raising the probability of FWA usage by 0.88 percentage points (18%) on average, with the largest increases occurring on the day of and the day after the inspection. A simple partial-equilibrium labour-demand model with heterogeneous tax morale rationalises these “on-the-spot” validations as an enforcement-avoidance margin. The post-inspection increase vanishes when firms are required to pre-notify the tax authority of their use of FWAs. Moreover, when FWAs are completely abolished, presumptive misusers substitute FWAs with temporary contracts.

Suggested Citation

  • Edoardo Di Porto & Pietro Garibaldi & Giovanni Mastrobuoni & Paolo Naticchioni, 2025. "The Perverse Effect of Flexible Work Arrangements on Informality," CESifo Working Paper Series 12115, CESifo.
    • Handle: RePEc:ces:ceswps:_12115
    as

    Download full text from publisher

    File URL: https://www.ifo.de/DocDL/cesifo1_wp12115.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. M. Keith Chen & Judith A. Chevalier & Peter E. Rossi & Emily Oehlsen, 2019. "The Value of Flexible Work: Evidence from Uber Drivers," Journal of Political Economy, University of Chicago Press, vol. 127(6), pages 2735-2794.
    2. repec:dau:papers:123456789/1888 is not listed on IDEAS
    3. Alexandre Mas & Amanda Pallais, 2017. "Valuing Alternative Work Arrangements," American Economic Review, American Economic Association, vol. 107(12), pages 3722-3759, December.
    4. Adams, Abi. & Adams-Prassl, Jeremias., 2018. "Zero-hours work in the United Kingdom," ILO Working Papers 994983192702676, International Labour Organization.
    5. Gabriel Ulyssea, 2020. "Informality: Causes and Consequences for Development," Annual Review of Economics, Annual Reviews, vol. 12(1), pages 525-546, August.
    6. Gavoille, Nicolas & Zasova, Anna, 2023. "What we pay in the shadows: Labor tax evasion, minimum wage hike and employment," Journal of Public Economics, Elsevier, vol. 228(C).
    7. Tito Boeri & Pietro Garibaldi, 2024. "Temporary Employment in Markets with Frictions," Journal of Economic Literature, American Economic Association, vol. 62(3), pages 1143-1185, September.
    8. Nikhil Datta & Giulia Giupponi & Stephen Machin, 2019. "Zero-hours contracts and labour market policy," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 34(99), pages 369-427.
    9. Kirill Borusyak & Xavier Jaravel & Jann Spiess, 2024. "Revisiting Event-Study Designs: Robust and Efficient Estimation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(6), pages 3253-3285.
    10. Bíró, Anikó & Prinz, Dániel & Sándor, László, 2022. "The minimum wage, informal pay, and tax enforcement," Journal of Public Economics, Elsevier, vol. 215(C).
    11. 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.
    12. Edoardo Di Porto & Leandro Elia & Cristina Tealdi, 2017. "Informal work in a flexible labour market," Oxford Economic Papers, Oxford University Press, vol. 69(1), pages 143-164.
    13. Athey, Susan & Imbens, Guido W., 2022. "Design-based analysis in Difference-In-Differences settings with staggered adoption," Journal of Econometrics, Elsevier, vol. 226(1), pages 62-79.
    14. Tonin, Mirco, 2011. "Minimum wage and tax evasion: Theory and evidence," Journal of Public Economics, Elsevier, vol. 95(11), pages 1635-1651.
    15. Tito Boeri & Giulia Giupponi & Alan B. Krueger & Stephen Machin, 2020. "Solo Self-Employment and Alternative Work Arrangements: A Cross-Country Perspective on the Changing Composition of Jobs," Journal of Economic Perspectives, American Economic Association, vol. 34(1), pages 170-195, Winter.
    16. Bosch, Mariano & Esteban-Pretel, Julen, 2012. "Job creation and job destruction in the presence of informal markets," Journal of Development Economics, Elsevier, vol. 98(2), pages 270-286.
    17. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
    18. Lawrence F. Katz & Alan B. Krueger, 2019. "The Rise and Nature of Alternative Work Arrangements in the United States, 1995–2015," ILR Review, Cornell University, ILR School, vol. 72(2), pages 382-416, March.
    19. Goodman-Bacon, Andrew, 2021. "Difference-in-differences with variation in treatment timing," Journal of Econometrics, Elsevier, vol. 225(2), pages 254-277.
    20. Dominik Enste & Friedrich Schneider, 2002. "Hiding in the Shadows; The Growth of the Underground Economy," IMF Economic Issues 30, International Monetary Fund.
    21. Sun, Liyang & Abraham, Sarah, 2021. "Estimating dynamic treatment effects in event studies with heterogeneous treatment effects," Journal of Econometrics, Elsevier, vol. 225(2), pages 175-199.
    22. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1998. "Regulatory Discretion and the Unofficial Economy," American Economic Review, American Economic Association, vol. 88(2), pages 387-392, May.
    23. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July.
    24. Mr. Friedrich Schneider & Dominik Enste, 2002. "Hiding in the Shadows: The Growth of the Underground Economy," IMF Economic Issues 2002/001, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. is not listed on IDEAS
    2. Katharina Pfeil & Matthias Kasper & Sarah Necker & Lars P. Feld, 2024. "Tax System Design, Tax Reform, and Labor Supply," CESifo Working Paper Series 11350, CESifo.
    3. Pinjas Albagli & Rui Costa & Stephen Machin, 2026. "Minimum wages and the nature of work," CEP Discussion Papers dp2173, Centre for Economic Performance, LSE.
    4. Anna Herget & Regina T. Riphahn, 2024. "Phasing Out Payroll Tax Subsidies," CESifo Working Paper Series 11605, CESifo.
    5. Alessandra Casarico & Irene Ferrari & Caterina Pavese, 2025. "Rebalancing Power Asymmetries Within Firms: Evidence from Illegal Resignations," CESifo Working Paper Series 11805, CESifo.
    6. Herget, Anna & Riphahn, Regina T., 2024. "Phasing Out Payroll Tax Subsidies," IZA Discussion Papers 17587, IZA Network @ LISER.
    7. Fanfani Bernardo & Passerini Filippo, 2024. "Do Alternative Work Arrangements Substitute Standard Employment? Evidence from Worker-level Data," Working papers 085, Department of Economics, Social Studies, Applied Mathematics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhang, Jian & Sun, Xuhong & Zhu, Xinyu & Kong, Dongmin, 2026. "Does uber affect crime? Evidence from U․S․," Journal of Economic Behavior & Organization, Elsevier, vol. 244(C).
    2. Hahm, Dong Woo, 2026. "From curriculum to career: Early-career labor market effects of the Common Core," Economics of Education Review, Elsevier, vol. 110(C).
    3. Jin, Wenchao & Jin, Zhangfeng, 2026. "Migration Reform and Fertility: Evidence from Rural China," GLO Discussion Paper Series 1718, Global Labor Organization (GLO).
    4. Coraggio, Luca & Pagano, Marco & Scognamiglio, Annalisa & Tåg, Joacim, 2025. "JAQ of all trades: Job mismatch, firm productivity and managerial quality," Journal of Financial Economics, Elsevier, vol. 164(C).
    5. Mark Kattenberg & Bas Scheer & Jurre Thiel, 2023. "Causal forests with fixed effects for treatment effect heterogeneity in difference-in-differences," CPB Discussion Paper 452, CPB Netherlands Bureau for Economic Policy Analysis.
    6. Olena Kostyshyna & Etienne Lalé, 2022. "On the evolution of multiple jobholding in Canada," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(2), pages 1095-1134, May.
    7. Arne Henningsen & Guy Low & David Wuepper & Tobias Dalhaus & Hugo Storm & Dagim Belay & Stefan Hirsch, 2026. "Estimating Causal Effects With Observational Data: Guidelines for Agricultural and Applied Economists," Journal of Agricultural Economics, Wiley Blackwell, vol. 77(2), pages 356-382, June.
    8. Yu, Yantuan & Zhang, Ning, 2025. "Towards low-carbon development through integration of technology and finance: Quasi-experimental evidence from China," Research in International Business and Finance, Elsevier, vol. 80(C).
    9. Fabre, Brice & Sangnier, Marc, 2025. "Where and why do politicians send pork? Evidence from central government transfers to French municipalities," Journal of Public Economics, Elsevier, vol. 241(C).
    10. Federico A. Bugni & Ivan A. Canay & Steve McBride, 2023. "Decomposition and Interpretation of Treatment Effects in Settings with Delayed Outcomes," Papers 2302.11505, arXiv.org, revised Jul 2025.
    11. Ngoc Dao & Riley Wilson, 2026. "Alternative Insurance: Gig Work and Social Insurance Participation," CESifo Working Paper Series 12897, CESifo.
    12. Philipp Bach & Sven Klaassen & Jannis Kueck & Mara Mattes & Martin Spindler, 2025. "Sensitivity Analysis for Treatment Effects in Difference-in-Differences Models using Riesz Representation," Papers 2510.09064, arXiv.org.
    13. Lennon, Conor & Maclean, Johanna Catherine & Teltser, Keith, 2025. "Ridesharing and substance use disorder treatment," Journal of Health Economics, Elsevier, vol. 99(C).
    14. Guillaume Gueguen & Claudia Senik, 2023. "Adopting telework: The causal impact of working from home on subjective well‐being," British Journal of Industrial Relations, London School of Economics, vol. 61(4), pages 832-868, December.
    15. Baksy, Aniket & Chandler, Daniel & Lambert, Peter John, 2025. "Anatomy of Automation : CNC Machines and Industrial Robots in UK Manufacturing, 2005-2023," The Warwick Economics Research Paper Series (TWERPS) 1585, University of Warwick, Department of Economics.
    16. Dolado, Juan J. & Jáñez, Alvaro & Wellschmied, Felix, 2025. "Riders on the Storm," IZA Discussion Papers 17740, IZA Network @ LISER.
    17. Si, Yi & Yu, Minfeng & Zhang, Lei & Zhou, Qing (Clara), 2025. "Board reforms and firm employment: Worldwide evidence," Journal of Banking & Finance, Elsevier, vol. 171(C).
    18. Edoardo Di Porto & Leandro Elia & Cristina Tealdi, 2017. "Informal work in a flexible labour market," Oxford Economic Papers, Oxford University Press, vol. 69(1), pages 143-164.
    19. Vod Vilfort, 2026. "Robust Inference for Weighted Estimands," Papers 2607.07524, arXiv.org, revised Aug 2026.
    20. Baksy, Aniket & Chandler, Daniel & Lambert, Peter John, 2025. "Anatomy of Automation: CNC Machines and Industrial Robots in UK Manufacturing, 2005-2023," CAGE Online Working Paper Series 778, Competitive Advantage in the Global Economy (CAGE).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    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:ces:ceswps:_12115. See general information about how to correct material in RePEc.

    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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.