Explaining the Normality of Informal Employment in Ukraine: A Product of Exit or Exclusion?

Abstract

Introduction In recent decades, it has been widely recognized that informal employment is a sizeable and expanding sphere of contemporary global economy (Charmes 2009; Feige and Urban 2008; ILO 2002a, 2002b; Jutting and Laiglesia 2009; Rodgers and Williams 2009; Schneider 2008). The result has been a refutation of long-standing view that this realm is some minor residue or leftover from a previous era of production that is disappearing from view. Instead, there have emerged various competing perspectives that seek to explain normality of informality. The aim of this article is to begin to evaluate critically validity of these contrasting explanations. To do this, first section introduces major schools of thought that seek to explain normality of informality. These are firstly structuralist school, which reads participation as driven by laborers' from state benefits and circuits of modern economy (Davis 2006; Gallin 2001; Hudson 2005; Sassen 1997) and secondly, several schools that explain participation as driven by voluntary decision to formal economy (Cross 2000; Gerxhani 2004; Maloney 2004; Perry and Maloney 2007; Snyder 2004). These include, on one hand, a neo-liberal perspective that portrays informal workers as voluntarily opting to work in this manner due to costs of working legitimately and, on other hand, a poststructuralist school that again depicts informal employment as a choice but more driven by social and redistributive rationales than pure cost-benefit calculations. To evaluate critically validity of these competing explanations, second section then introduces a survey conducted in Ukraine during 2005/6 based on 600 face-to-face interviews. The third section reports findings. This will not only display normality of informality in contemporary Ukraine but also how participation is not result of either exit or exclusion but instead, how some is conducted due to exit, some due to exclusion, and some for both reasons. The article thus concludes by calling for a move beyond current either/or explanations and for a greater appreciation of how various explanations are more relevant in relation to different types of informal employment and population groups. At outset, however, informal employment needs to be defined. Reflecting strong consensus, informal employment here refers to paid work that is not declared to authorities for tax, social security, and/or labor law purposes when it should be declared (European Commission 1998, 2007; OECD 2002; Renooy et al. 2004; Schneider 2008; Sepulveda and Syrett 2007; Williams 2004; Williams and Windebank 1998). This is only difference between formal and informal employment. If goods and/or services are illegal (such as drug-trafficking), for example, then this is activity. If activity is not remunerated, similarly, it is part of unpaid informal economy. Of course, in practice, boundaries sometimes blur. Those in informal employment and those engaged in criminal activities sometimes overlap and informal employment can be rewarded with gifts or in-kind rather than purely with monetary payments. Explaining Informal Employment: A Product of Exit or Exclusion? Throughout much of 20th century, informal employment was commonly depicted as a leftover or residue from a previous era. As such, its continuing presence was seen to be a sign of underdevelopment, traditionalism, and backwardness whilst formal economy represented progress, development, and advancement (Geertz 1963; Lewis 1959). Formal and informal employment were therefore temporally sequenced by viewing formal employment as in ascendancy and informal employment as the mere vestige of a disappearing past [or as] transitory or provisional (Latouche 1993: 49). In recent decades, however, numerous studies have revealed not only that informal employment is extensive and persistent but also that it is growing relative to formal employment in many populations (Charmes 2009; Feige and Urban 2008; ILO 2002a, 2002b; OECD 2002; Schneider 2008; Schneider and Enste 2000). …