Cross-national variations in the scale of informal employment: An exploratory analysis of 41 less developed economies

The purpose of this paper is to evaluate critically the competing explanations for the cross-national variations in the scale of informal employment which variously correlate higher levels of informal employment with economic under-development (“modernization” theory), corruption, higher taxes and state interference (“neo-liberal” theory) and inadequate state intervention to protect workers from poverty (“structuralist” theory).

To do this, data on the prevalence of informal employment collected by the International Labour Organisation using a common survey method across 41 less developed economies are analysed and compared using bivariate regressions with World Bank development indicators.

Some 34.4 per cent of the non-agricultural workforce is in informal employment across these 41 countries, with the share in informal employment ranging from 83.6 per cent in India to 6.1 per cent in Serbia. Evaluating critically the competing explanations, a call is made for a synthesis of the modernisation and structuralist theoretical perspectives in a new “neo-modernisation” theory that tentatively associates higher levels of informal employment with economic under-development, smaller government and inadequate state intervention to protect workers from poverty.

Based on 41 cases, a multivariate regression analysis was not possible to determine how important each characteristic is to the final outcome whilst controlling for the other characteristics.

This paper tentatively displays that wider economic and social policies, such as social protection, are significantly correlated with the level of informal employment.

This is the first paper to use a direct survey to analyse and explain cross-national variations in informal employment in less developed economies.