Participation In Undeclared Work Research Articles

Modelling immigrants’ participation in undeclared work in Gauteng province, South Africa

Modelling immigrants’ participation in undeclared work in Gauteng province, South Africa

Measuring participation in undeclared work in Europe using survey data: A method for resolving social desirability bias

Measuring participation in undeclared work using surveys has been criticized for under-estimating the level of engagement due to social desirability bias that leads to an under-reporting of “bad” behavior. Until now, few studies have sought to quantify the amplitude of this bias in surveys of undeclared work. The aim of this paper is to fill this gap by using the most appropriate methodologies for estimating the probability of misleading responses in such surveys. Reporting data from special Eurobarometer survey no. 498 conducted in 2019 and involving 27,565 respondents in EU-27 countries and the UK, only 3.5% openly admitted to participating in undeclared work. The results of a Probit model with correction for misclassified cases (i.e., those undertaking undeclared work but declaring that they do not) reveals that nearly a quarter (23.3%) of the respondents undertaking undeclared work refused to openly admit this during the survey, due to the social desirability bias. The estimated overall proportion of undeclared workers is 17.3%. We obtained this value by correcting for both misclassification and the additional source of negative bias due to the large imbalance in the data (i.e., observations in one class are much lower than the other). The outcome of this new advanced approach in analysing undeclared work is that survey estimates can now report its size and determinants in a more accurate manner than has been previously the case.

Revisiting tax morale: evaluating the acceptability of business- and individual-level non-compliance on participation in undeclared work

PurposeThe aim of this paper is to evaluate whether the acceptability of different types of business- and individual-level non-compliance has different impacts on the likelihood of participation in undeclared work.Design/methodology/approachTo evaluate this, data is reported on the EU27 and the UK from the special Eurobarometer survey no. 498, using a novel statistical methodology that deals with two potential sources of bias: sample selection error (avoidance to answer to the question about participation to undeclared work) and misclassification in the response variable (false statements about engagement in undeclared work).FindingsThis reveals the association between tax morale and participation in undeclared work. It shows that citizens find far more unacceptable undeclared work conducted by firms than individuals, but both are significantly associated with participation in undeclared work although the greatest effect is clearly exerted by individual-level tax morale.Originality/valueThis paper uses a methodology that accounts for the potential bias related to sample selection error and misclassification in the response variable of participation in undeclared work and sheds light on different components of tax morale.

A two-part measurement error model to estimate participation in undeclared work and related earnings

In undeclared work research, the estimation of the magnitude of the phenomenon (i.e., the amount of income and/or the percentage of workers involved) is of major interest. This has been done either using indirect methods or by means of ad hoc surveys such as the Eurobarometer special survey on undeclared work, our motivating study. The extent of undeclared work can be measured by means of two different outcomes: the event of working off-the-book (binary variable) and, when the event occurs, the amount of earnings deriving from the undeclared activity (continuous variable). This setup has been typically modeled via the so called two-part model: a binary choice model for the probability of observing a positive-versus-zero outcome and then, conditional on a positive outcome, a regression model for the positive outcome. We propose an extension of the two-part model that goes in two directions. The first regards the measurement error that, given the very nature of undeclared activities, is most likely to affect both the outcomes of interest. The second is that we generalize the linear regression part of the model to allow individual-level means. We also conduct an extensive simulation study to investigate the performance of the proposed model and compare it with traditional approaches.

Intrinsic versus Extrinsic Drivers: An Investigation into Young People’s Motives to Engage in Under-Declared Employment and Undeclared Work

ABSTRACT The paper aims to deepen understanding of the reasons for participation in undeclared work and under-declared employment. Alongside the main theories used so far in the field, self-determination theory is introduced by investigating the role of internalized and extrinsic motivation. Logistic regression analysis and classification and regression trees are used on a sample of 1,059 Romanian youths. The results emphasize the central role of tax morale, in generating intolerance toward informal practices and internalized motivations for compliance. In addition, peer influence shapes the decision to adopt informal practices whereas deterrent measures have no significant impact.

Evaluating the relationship between marginalization and participation in undeclared work: lessons from Bosnia and Herzegovina

ABSTRACT This paper tests competing hypotheses on the relationship between marginalization and participation in undeclared work. The ‘marginalization’ thesis views undeclared work as conducted primarily by marginalized populations among which young, unemployed and economically fragile people dominate. A competing ‘reinforcement’ thesis argues that undeclared work is conducted disproportionately by those in declared jobs and thus that the undeclared economy reinforces, rather than reduces, the inequalities produced by the declared economy. To evaluate who engages in undeclared work and to test these competing theses, data is reported from a 2015 survey of 6,021 randomly selected adult respondents in Bosnia and Herzegovina. Reporting the marginal effects of a Probit regression analysis, the finding is that marginalized groups (the unemployed, younger age groups, those with fewer years in formal education, lower-income households, rural populations and those from poorer regions) are all significantly more likely to participate in undeclared work. The implications for theory and policy are discussed, along with the limitations of the study and future research required.

Re-theorising participation in undeclared work in the European Union: lessons from a 2019 Eurobarometer survey

ABSTRACT When explaining participation in undeclared work, the dominant theorisation views undeclared workers as rational economic actors participating in undeclared work when the benefits exceed the expected costs of being caught and punished. An alternative theorisation views participants’ in the undeclared economy as social actors driven into undeclared work by their lack of vertical trust (in governments) and horizontal trust (in others). To evaluate these perspectives, this paper reports data from 27,565 interviews conducted for a 2019 Eurobarometer survey on undeclared work in 28 European countries. This reveals that raising the expected costs of being caught and punished has no significant impact on the likelihood of conducting undeclared work. However, greater vertical and horizontal trust have a significant impact on preventing participation in undeclared work, and vertical and horizontal trust also moderate the effectiveness of using penalties and detection to deter engagement in undeclared work. The implication for theory is that a social actor perspective is advocated. The result is a call for a policy shift away from the dominant deterrence approach that increases the penalties and risks of detection, and towards a policy approach focused on improving vertical and horizontal trust.

Evaluating Policy Approaches Towards Tackling Undeclared Work in the Czech Republic

This paper evaluates two competing theories for explaining and tackling undeclared work. The dominant rational economic actor approach views undeclared work as arising when the perceived benefits of engaging in undeclared work outweigh the costs, so attention is put on increasing the costs, whilst the more recent social actor approach views undeclared work to result from the lack of citizens’ commitment to compliance and thus attempts to enhance vertical and horizontal trust. To evaluate these theories, 1,024 and 1,000 face-to-face interviews undertaken in 2007 and 2013 with a representative sample in the Czech Republic are analysed. The finding is that higher perceived penalties and risks of detection have no significant impact on the likelihood of conducting undeclared work. In contrast, the level of vertical and horizontal trust have a significant impact on engagement in undeclared work; the higher the vertical and horizontal trust, the lower is the likelihood of participation in undeclared work. The theoretical implication is that this evidence supports a new social actor approach. The policy implication is that the rational economic actor approach of increasing the penalties and risks of detection appears ineffective, and a new policy approach is proposed focused on improving vertical and horizontal trust.

Evaluating the Relationship Between Migration and Participation in Undeclared Work: Lessons from Bosnia and Herzegovina

Until now, studies of the relationship between migration and participation in undeclared work have adopted as their unit of analysis the activity of specific migrant groups in their host country. In this paper, a novel approach is pursued by adopting a different unit of analysis. To examine the relationship between migration and participation in undeclared work, the activity of the domestic population in their home country is analysed according to their previous migration activity. To do so, data is reported from a 2015 survey of 6,021 randomly selected respondents aged between 16 and 65 years old in Bosnia and Herzegovina. The finding is that undeclared work is the sole source of earnings for 21% of the total labour force, but for 26% of those who have spent more than three months abroad, 18% of internal migrants and 22% of those who have not migrated either internally or abroad. After controlling for other determinants of undeclared work, a Probit regression analysis finds a significant 8% higher probability of participation in undeclared work for those who have spent time out of the country compared with the non-migrant population. The theoretical and policy implications are then discussed.

Tackling Undeclared Work in the European Union

Undeclared work represents a persistent feature of contemporary economies and results in lost public revenue, lack of worker protection and unfair competition for legitimate businesses. Conventionally, undeclared work has been viewed as an individual criminal act, which is solved by governments increasing the penalties and risks of detection in order to discourage participation. This, however, only deals with the outcome (i.e., participation in undeclared work) and does not address the drivers of this behaviour. This report explores the formal institutional failures which make undeclared work an acceptable behaviour in the eyes of citizens and, consequently, result in high participation in undeclared work. Addressing these institutional failures is important in order to tackle the determinants of undeclared work. This report investigates what policy measures are effective by exploring in turn the views of citizens, businesses and policy makers. The finding is that, despite the increasing importance attributed by the governments to deterrent measures, both citizens and businesses are influenced by other factors when deciding whether to participate in undeclared work. Thus, to tackle undeclared work in a more effective manner, preventative measures and measures aimed at fostering trust need to complement deterrent measures.

Tackling undeclared work in the European Union: beyond the rational economic actor approach

ABSTRACT To tackle the undeclared economy, an emergent literature has called for the dominant “rational economic actor” approach, which increases the sanctions and risk of detection, to be replaced and/or complemented by a “social actor” approach that fosters citizens’ commitment to compliance. Reporting two waves of the Eurobarometer survey conducted in 2007 and 2013 across Europe, fixed-effects logistic regression analysis reveals that although both approaches reduce participation in undeclared work, the strength of the impact of deterrents on the likelihood of participation in undeclared work has weakened between 2007 and 2013, but has strengthened for vertical and horizontal trust. The paper concludes by discussing the policy implications of these findings.

Institutional Asymmetry and the Acceptability of Undeclared Work

This report is part of the project SHADOWS which aims to investigate the effectiveness of different policy measures in reducing undeclared work. As such, the project evaluates not only the effectiveness of using a rational economic actor approach (that tackles undeclared work by ensuring that the payoff from undeclared work is outweighed by the costs), and a social actor approach (grounded in a view that undeclared work arises when tax morale is low), but also analyses the interaction effects (between deterrents and tax morale, and vertical and horizontal trust) in various contexts. This report focuses on the social actor approach, which is grounded in institutional theory, and aims to produce a more nuanced and variegated deeper understanding of citizens views on horizontal and vertical trust and the determinants of their tax morale. Which institutions and who do citizens not trust, and why? What causes trust and distrust? Does vertical trust influence horizontal trust, or is it the other way around? Under what circumstances is undeclared work deemed acceptable by citizens? And what are the main narratives on accepting and/or participating in undeclared work? Are these similar in different contexts? To answer these questions, the report briefly reviews how scholarship on participation in undeclared work has increasingly adopted the lens of institutional theory, and three waves of thought in institutional theory will be outlined regarding how to explain citizens` participation in undeclared work (Williams, 2017). This will be followed by a methodological section of the qualitative research conducted where details about the country case studies will be provided (as well as the type of questions used to investigate the issues). The third section then reports the results obtained using in-depth-interviews, focusing on how tax morale and trust in public institutions and/or in other citizens are shaped by formal institutional failings. The results will be structured into four main categories of formal institutional failure, namely: resource misallocations and inefficiencies; formal institutional voids and weaknesses; formal institutional powerlessness; and formal institutional instability and uncertainty (Williams, 2017). The report concludes with the policy implications of the findings.

Evaluating competing perspectives towards undeclared work: some lessons from Bulgaria

ABSTRACTWhen explaining and tackling the undeclared economy in Central and Eastern Europe, participants have been conventionally viewed as rational economic actors. They engage in undeclared work when the benefits outweigh the costs. Participation is thus deterred by increasing the sanctions and/or probability of being caught. Recently, however, an alternative social actor approach has emerged which views participants as engaging in undeclared work when their norms, values and beliefs (i.e. citizen morale) do not align with laws and regulations (i.e. state morale). Here, therefore, initiatives to develop greater symmetry between civic and state morale are pursued. To evaluate the validity and effectiveness of these competing explanations and policy approaches, 2,004 face-to-face interviews conducted in Bulgaria in late 2015 are reported. Logit marginal effects regression analysis reveals no association between participation in undeclared work and the perceived level of penalties and risk of detection, but a strong significant association with the level of asymmetry between citizen and state morale; the greater the asymmetry, the higher is the likelihood of participation in undeclared work. The paper concludes by discussing the implications for explaining and tackling undeclared work.

Polish Labour Migrants and Undeclared Work in Norway

This article identifies how labour migrants’ participation in undeclared work is triggered by a combination of voluntary exit from the formal labour market in the host country as well as structures that makes it more likely for this type of worker to be forced to accept unregistered work. The argument is built by examining how East‐West European Union migration can foster or reinforce reasons for participating in undeclared work. At the EU level, the issue of undeclared work is seen as a mounting challenge, and public discussion now associates a supposed increase in undeclared work with the EU's open borders. For this study, 74 semi‐structured interviews were conducted with Polish labour migrants in Norway – both temporary migrants and more settled ones. A substantial part of these interviews focused on undeclared work. The results indicate that immigration enhances as well as creates new reasons for participating in undeclared work. In particular, they highlight how decisions to participate in undeclared work are not just an effect of labour market dynamics, but also a question of social integration.

Illegitimate Economic Practices in Bulgaria: Findings from a Representative Survey of 2,005 Citizens

Illegitimate Economic Practices in Bulgaria: Findings from a Representative Survey of 2,005 Citizens

Explaining participation in undeclared work in France: lessons for policy evaluation

PurposeFrance is a model of best practice in the European Union as regards policy to combat undeclared work. The purpose of this paper is to take the country as a case study to evaluate the competing explanations of why people engage in undeclared work which underpin such policy, namely, the dominant rational-economic-actor approach and the more recent social-actor approach.Design/methodology/approachTo evaluate these approaches, the results of 1,027 interviews undertaken in 2013 with a representative sample of the French population are analysed.FindingsThe finding is that higher perceived penalties and risks of detection have no significant impact on the likelihood of conducting undeclared work in France. In contrast, the level of tax morale has a significant impact on engagement in the activity: the higher the tax morale, the lower is the likelihood of participation in the undeclared economy. Higher penalties and risks of detection only decrease the likelihood of participation in undeclared work amongst the small minority of the French population with very low tax morale.Practical implicationsCurrent policy in France to counter undeclared work is informed principally by the rational-economic-actor approach based on a highly developed infrastructure for detection and significant penalties alongside incentives to declare small-scale own-account work. The present analysis suggests that this approach needs to be supplemented with measures to improve citizens’ commitment to compliance by enhancing tax morale.Originality/valueThis case study of a country with a well-developed policy framework to combat undeclared work provides evidence to support the social-actor approach for informing policy change.

Developing a Holistic Approach for Tackling Undeclared Work

What is a holistic approach to tackling undeclared work? A holistic policy approach towards tackling the undeclared economy uses in a strategic and coordinated manner the full range of both the direct and indirect policy approaches and measures available to increase the power of, and trust in, authorities respectively. Direct approaches reduce the costs and increase the benefits of operating on a declared basis, and increase the costs and reduce the benefits of operating undeclared. To do this, it uses: • Deterrence measures that detect and punish participation in undeclared work firstly, by increasing the perceived or actual likelihood of detection and/or secondly, by raising the penalties and sanctions for those caught, and • Incentive measures that make it easier to undertake, and reward, participation in declared work. These include: o Preventative measures that encourage citizens and businesses to not engage in the undeclared economy (e.g., by simplifying compliance, using direct and indirect tax incentives to make it beneficial to operate on a declared basis, and providing support and advice about how to start-up legitimately), and o Curative measures that incentivise citizens and businesses to make the transition to the declared realm. These can be either (a) supply-side incentives targeting businesses and workers in the undeclared economy or (b) demand-side incentives targeting their customers with rewards for using declared goods and services. Indirect approaches, meanwhile, recognise that citizens and businesses are not just rational economic actors (purely calculating the costs and benefits). They are also social actors who engage in undeclared work when formal institutional failings lead to them adopting norms and beliefs regarding participation in undeclared work that do not align with the laws and regulations. To align them, therefore, indirect policy approaches either: • Change the norms, values and beliefs regarding participation in undeclared work, so that these are in symmetry with the laws and regulations (e.g., using awareness raising campaigns and educational initiatives), and/or • Change the formal institutional imperfections that lead to a lack of alignment between the norms, values and beliefs of the population, and the laws and regulations. This can involve either: o Changing the internal processes of formal institutions by improving procedural and distributive fairness and justice, so as to improve trust in government, and/or o Changing the products of formal institutions by pursuing wider economic and social measures associated with lower levels of undeclared work (e.g., increased social expenditure levels, more effective social transfers, active labour market policies targeted at vulnerable groups, greater equality). To effectively tackle undeclared work, the emerging evidence is that both direct and indirect measures should be used. How to combine and sequence these measures, however, is being debated. Two approaches are being discussed: responsive regulation sequences them by using indirect measures first, then incentives, and deterrents only for those still failing to comply; and the slippery slope framework asserts that the most effective approach is to concurrently improve both the power of authorities using direct measures (i.e., enforced compliance) as well as trust in authorities using indirect measures (i.e., voluntary cooperation). This background paper thus provides a common understanding for Platform members to discuss how to tackle undeclared work and encourages reflection on the approaches and measures currently being pursued in their own Member State.

Evaluating the policy approaches for tackling undeclared work in the European Union

When tackling the undeclared economy, an emergent literature has called for the conventional rational economic actor approach (which uses deterrents to ensure that the costs of undeclared work outweigh the benefits) to be replaced or complemented by a social actor approach which focuses upon improving tax morale. Evaluating the validity of doing so using 27,563 face-to-face interviews conducted in 2013 across Europe, multilevel logistic regression analysis reveals that both approaches significantly reduce participation in undeclared work. When tax morale is high, however, deterrence measures have little impact on reducing the probability of participation in undeclared work and it is only when tax morale is low that raising the level of deterrents has greater impacts, with increasing the perceived risks of detection in such contexts leading to higher reductions in participation in undeclared work than increasing the perceived punishments. The paper concludes by calling for more nuanced context-bound policy approaches.

Tackling the undeclared economy in the European Union: an evaluation of the tax morale approach

AbstractTo evaluate a new approach towards tackling the undeclared economy, which views participants as social actors rather than rational economic actors, this article reports evidence from 27,563 face‐to‐face interviews conducted across the European Union during 2013. Multilevel logistic regression analysis reveals a strong association between participation in undeclared work and the level of tax morale. Finding that higher tax morale (and thus a lower propensity to engage in undeclared work) is strongly correlated with greater levels of state intervention but also with individual‐level characteristics such as gender, age, education and employment status, the article concludes not only by confirming a political economy approach and refuting modernization and neo‐liberal explanations and remedies, but also by revealing for the first time the importance of solutions not so far considered, including improving educational attainment, older citizens mentoring for younger people and improving women's participation in the labour force.

Beyond a Deterrence Approach towards the Undeclared Economy: Some Lessons from Bulgaria

Until now, the undeclared economy has been tackled in Balkan countries by increasing the penalties and risk of detection so as to deter participation. Recently however, calls have been made for a new more indirect approach that improves tax morale in order to foster a culture of commitment to compliance. The aim of this paper is to evaluate these contrasting policy approaches. Reporting evidence from 1018 face-to-face interviews conducted in Bulgaria during 2013, logistic regression analysis reveals no association between participation in undeclared work and the perceived level of penalties and risk of detection, but a strong association between participation in undeclared work and the level of tax morale. The paper concludes by discussing the theoretical and policy implications of the findings.