Introduction

What types of informal work exist? Who participates in the informal economy? Why do they do so? This chapter seeks answers to these questions regarding the characteristics of the informal economy. To do so, the first section introduces the different types of work in the informal economy, revealing how over recent decades a plethora of heterogeneous forms of work have been recognized to exist in the informal economy. Secondly, and to analyse who engages in the informal economy, the widely-held marginalization thesis is evaluated which holds that it is groups marginalized from the formal labour market who are more likely to participate in the informal economy. Thirdly, the reasons for participation in the informal economy are evaluated. This will analyse whether it is indeed the case that the participation of workers in the informal economy is largely necessity-driven due to their exclusion from the formal economy and alternative means of livelihood, or whether at least some workers participate in the informal economy because they desire to exit the formal economy, perhaps due to the level of public sector bribery and corruption they witness when seeking to work in the formal economy. Having reviewed who supplies informal work and their reasons for doing so, the fourth section then turns to the demand-side and evaluates who purchases goods and services in the informal economy and their motives for doing so. Whether goods and services are purchased in the informal economy solely due to them being cheaper, or whether other reasons for doing so also prevail, will be examined in the context of a case study of the 28 countries of the European Union. Finally, some conclusions will be drawn about the character of the informal economy in terms of what it is, who participates and why they do so.

Types of informal work

During the latter half of the twentieth century until around the 1980s, a widely-held view was that work in the informal economy was low-paid waged employment conducted under “sweatshop-like” exploitative conditions in which legislation on health and safety standards, minimum wages, holiday entitlements, working hours and so on, did not apply.

Introduction

The aim of this concluding chapter is to synthesize the material from the previous chapters and to draw conclusions about the way forward for measuring, explaining and tackling the informal economy. To do so, the starting point is the set of questions posed at the start of this book. What different theories have been used to explain the informal economy and how have the dominant theoretical explanations changed over time? How can the informal economy be measured and what is its size? What types of informal work exist, who does it and what are their motives for participating in the informal economy? And what policy options are available for tackling the informal economy? What is the current approach being pursued and why, and what alternative policy approaches and measures might be instead used to tackle the informal economy? In this concluding chapter, how these questions have been answered will be reviewed along with fruitful future directions for research on the informal economy.

Defining the informal economy

Reviewing the competing enterprise-, jobs- and activity-based definitions, the informal economy was defined in Chapter 1 as socially legitimate paid work that is not declared to, hidden from, or unregistered with, the authorities for tax, social security and/or labour law purposes when it should be declared. If the activity is illegal in other respects and/or deemed socially illegitimate, then this activity is not considered part of the informal economy but instead part of the criminal economy (e.g. forced labour, selling stolen goods, trafficking illegal drugs) which is both illegal from the viewpoint of formal institutions and illegitimate from the viewpoint of informal institutions. Given the strong consensus amongst scholars about what is the informal economy, and what is not, there is seen to be little need for future research to expend much energy on defining the informal economy.

The only issue that might be considered in this regard is that the above definition of the informal economy adopted in this book gives a little too much emphasis to agency when defining the informal economy.

Introduction

Those hearing figures regarding the size of the informal economy for the first time, akin to more seasoned scholars, are correct to be deeply sceptical about these estimates of its magnitude. Not only is the informal economy by its very nature a hidden phenomenon and therefore difficult to measure but estimates of its size often vary markedly. For example, estimates of the size of the informal economy in Romania range from 9.5 to 37.8 per cent of GDP, and in Germany from 1.0 to 17.1 per cent (GHK & Fondazione Brodolini 2009). To understand such startlingly different measurements of the size of the informal economy, however, it is necessary to comprehend the various methods being used to measure its magnitude.

In this chapter, therefore, the next section briefly introduces the various measurement methods. These range from indirect methods that seek statistical traces of the informal economy in data collected for other purposes to more direct survey methods. Following this, the third section then reports a study of the variations in the size of the informal economy in the European Union using an indirect measurement method, namely the labour input method (LIM), and then uses these estimates to evaluate the theories discussed in the last chapter by comparing whether there is a significant correlation between cross-national variations in the size of the informal economy using this indirect measurement method and cross-national variations in the structural determinants highlighted to be important in each theorization. This is then followed, in the fourth section, by a reporting of the cross-national variations in the size of the informal economy in developing countries using a direct survey approach, along with whether similar correlations are identified between the size of the informal economy and various structural determinants. The fifth and final section then draws some conclusions about the measurement methods and the validity of the different theorizations discussed in the last chapter that seek to explain the country-level variations in the size of the informal economy.

Methods for measuring the size of the informal economy

Two broad types of method exist for measuring the size of the informal economy: indirect and direct.

Introduction

Having shown the multifarious forms of informal work, diverse population groups who participate and wide range of motives for participation, we now turn to the issue of tackling the informal economy. To do so, this chapter reviews each of the four possible hypothetical policy goals available to governments: taking no action; eradicating the informal economy; deregulating the formal economy; or formalizing the informal economy. In each case, the disadvantages and advantages of these policy options are reviewed. This will reveal that if no action is taken, the disadvantages far outweigh the advantages. Secondly, if eradicating the informal economy is pursued as the policy goal, the disadvantages again outweigh the advantages, as is also the case when deregulation of the formal economy is pursued. In consequence, this chapter will argue that formalizing the informal economy is the most viable policy goal. Indeed, this is also the conclusion of the supra-national agencies when considering what is to be done about the informal economy (European Commission 2016; ILO 2015; OECD 2016).

Given this goal of formalizing the informal economy, the second section of the chapter reviews the policy measures available for achieving this objective. This will set out two broad sets of policy measures. On the one hand, there are direct policy measures, which seek either to dissuade participation in the informal economy and/or to incentivize and encourage participation in the formal economy. To do so, measures are used that directly increase the costs and reduce the benefits of informality, as well as reduce the costs and increase the benefits of operating in the formal economy. The aim in doing so is to address the formal institutional failing, namely the powerlessness of formal institutions, which results in the greater prevalence of the informal economy. Using these direct policy measures on their own, however, does not tackle the other formal institutional failures and imperfections that produce institutional asymmetry and thus the greater prevalence of the informal economy.

On the other hand, and to address these other formal institutional failures that lead to institutional symmetry and to large informal economies, indirect policy measures can be used.

Macroeconomics needs to take people more seriously. Human beings represent the most important economic resource that undergirds long-run economic performance and well-being. It is not just the sheer number of people on the planet that counts. Their capacities to contribute to their households, communities, and their societies are of utmost importance. Moreover, human beings are products of the economies in which they live. Raising children to adulthood requires substantive investments of time, money, goods and services. It also requires coordinating the allocation of resources across generations.

This coordination does not happen by magic, or exclusively through markets or pure self-interest. Numerous institutions, including household structures, social norms, and gender roles, come into play. These institutions may not be fair. They may not be efficient. They often perpetuate inequalities, including economic disparities between men and women, and artificially limit women’s potential by constraining their choices and options. Equally important, these institutions may not seamlessly adapt to the future needs of the economy. There is no guarantee that current demographic trends or investments in human beings will be sufficient to keep our economies healthy in the future.

Despite the importance of all of these issues, current macroeconomic thinking and practice falls short. This is dangerous, since the way we understand how the economy works influences the policies that are ultimately adopted. If our understanding is partial or impoverished, so will be our solutions to the problems we face.

What is also clear is that the exact mix of policies and institutions needed will vary from one context to the next. Some countries fear the consequences of below-replacement fertility, as their populations age and slowly shrink. Others, with high fertility rates, face the challenge of what to do with a burgeoning youth population. Social norms and gender roles differ, as do the structures of economies. No single solution exists for all people and places. There is no “one size fits all” option. Nevertheless, we can discuss what the elements of a better macroeconomics might look like.

So, what are the key ingredients of a revitalized macroeconomics? Reworking basic concepts and measurements is a good place to start.

MACROECONOMIC POLICY AND GENDER INEQUALITY: WHAT ARE THE CONNECTIONS?

Macroeconomics claims as its domain the policies, prices and practices that affect the economy as a whole. In contrast, microeconomics primarily concerns itself with the choices individuals and businesses make. In many respects, this way of carving up the economy is artificial. Macro–micro overlaps are commonplace. Individual decisions and behaviours, taken together, affect the overall economy. Likewise, a general collapse of financial markets changes the choices people make. There are certain interventions that have broad-based impacts and have the potential to alter the general economic environment. We call these interventions macroeconomic policies.

Macroeconomic policies are typically divided into two categories: fiscal policies and monetary policies. Fiscal policies are concerned with how governments mobilize resources and how they spend the money they have. They include government spending, tax policy, and the generation of other types of public revenues. Governments are also capable of borrowing when expenditures exceed current revenues. Fiscal policies are therefore concerned with deficit financing and the management of the public debt.

Monetary policies are the remit of central banks. They affect the supply of credit and the resources available to financial institutions. They are able to influence some of the most important prices in the economy: interest rates and exchange rates. Interest rates affect the cost of borrowing and impact major economic decisions: whether to buy a house, whether to expand a business, and whether to take out a loan for a new car. Exchange rates have a huge effect on international transactions. They influence a country’s ability to compete on global markets and the cost of imported essentials, such as food and energy.

Governments and central banks implement macroeconomic policies with a number of objectives in mind. In some cases, macroeconomic policies attempt to promote economic growth. They can be used to try to insure that there is adequate demand for the goods and services an economy produces. By changing the level of demand, they have a knock-on effect on the level of employment. Because of this, one common macroeconomic policy objective is to reduce unemployment.

Most macroeconomists identify economic progress with growth – a sustained increase in GDP, or GDP per capita, over time. But relying on GDP has its shortcomings. Standard national income statistics fail to capture many features of the economy that are important to our well-being. Plus, these measurements are not the best indicator of household living standards, since they ignore non-market production, do not fully reflect transfers, and fail to accurately capture the benefits of direct government services. Nevertheless, increases in national income are imperfectly correlated, at least on average, with outcomes people care about, such as living longer and healthier lives, enjoying better living conditions, and having more choices in the course of their lives. When growth turns negative, as happens during recessions and depressions, the effect can be devastating. People lose their livelihoods and feel their economic security evaporate. For these reasons, understanding the factors that contribute to long-run economic performance at the macro level remains an area of concern.

Robert Solow, a prolific US economist, is intimately associated with one early, and extremely influential, approach to theorizing growth at the macro level. The original Solow growth model identifies two factors of production that determine total market output: capital and labour (Solow 1956). In the Solow model, capital refers to investment in productive, physical assets, such as equipment, buildings and machinery. Labour represents the total volume of paid work that employed people perform. In most versions of the original Solow model, there is a technology parameter that increases the productivity of capital, or labour, or both factors simultaneously. In the model, capital is a produced factor of production, meaning that a certain fraction of total output is reserved for building more machines, equipment, production facilities, and other forms of physical investment. In contrast, factors outside of the macroeconomy determine the amount of labour available. In the basic model, population growth rates are fixed and are not influenced by the process of production or the accumulation of capital assets over time.

When it comes to modeling economic growth, capital has always had the pride of place as the quintessential produced factor of production. The Solow growth model is not alone in this regard.

Women do an enormous amount of unpaid labour. A 2018 report of the International Labour Organization (ILO) took survey data from 64 countries, representing two-thirds of the world’s population, and estimated that the people in the countries surveyed performed over 16 billion hours of unpaid household work everyday (ILO 2018). Women did 76 per cent of this work. This means that women’s unpaid labour in these countries totaled about 4.5 trillion hours a year, a volume of work equivalent to that of 2.1 billion full-time jobs (based on a 40-hour paid working week).

What is all this work worth? Estimates for the US economy of the value of unpaid childcare, an important component of non-market household production, run to trillions of dollars – one calculation for 2012 places it at $3.2 trillion, or approximately 20 per cent of that year’s GDP (Suh & Folbre 2014). This number only captures unpaid childcare, and does not add in all the other non-market services produced within households. Efforts at valuing unpaid work across a variety of countries typically come up with estimates in the range of 15–40 per cent of GDP, depending on the methods used (UN Women 2015). This range of the estimated value of unpaid work is of the same order of magnitude as the monetary value of the public sector’s contribution to the measured economy. Macroeconomists would never think to exclude the government from their analysis. Yet non-market production using unpaid labour is routinely ignored in macroeconomic statistics.

Earlier we argued that changes in the macroeconomic environment interact with structural sources of gender inequality to yield different outcomes for women and men. One source of inequality is women’s disproportionate burden of unpaid household work. The unbalanced way in which women’s labour is allocated must be addressed to reduce, and ideally eliminate, persistent gender inequalities in the world’s economies. But it is hard to rebalance the non-market side of the economy when unpaid work does not count and is rarely acknowledged.

Feminist economists have long pointed out the need to recognize, value, and do something about the unequal burden of unpaid work.

The new Gendered Economy series of short books critically examines our understanding of the economy through the lens of gender. It showcases how economic relationships, actions and institutions are directly affected by gender norms and challenges many of the tenets that underpin both the mainstream and heterodox interpretation of how economies function. James Heinz’s book The Economy’s Other Half underscores this in its aim to challenge “the status quo of the current practice of macroeconomics by bringing gender into the way we understand how the economy works”.

On the whole, neither mainstream nor heterodox macroeconomics, both in terms of theory development or policy formulation, pays attention to the role of gender in the economy and the implications of macro-level policies for gender equality. This book challenges that neglect. Starting from the premise that economies are shaped by gender relations and that macroeconomic policy is likely to affect every aspect of women’s and men’s economic lives, the book focuses on three specific areas of inquiry: firstly, how and why macroeconomic policies affect women and men differently, considering both fiscal policy (government spending, taxation and borrowing) and monetary policy (interventions that affect the money supply, interest rates and exchange rates); secondly, why the identification and measurement of the variables that form the basis of macroeconomics are incomplete and lead to poor policy choices; and thirdly, how investments in human beings, including unpaid and non-market care, affect the economy’s prospects, and people’s well-being, across generations.

Fiscal and monetary policies have large, broad-based effects on the economy influencing the level of demand, prices, employment, income distribution and productivity. Such policies, which fundamentally influence the productive capacity of the economy, are almost always designed and implemented without any specific reference to gender. It is usually presumed that macroeconomic formulation and policy advice is gender neutral because it does not explicitly target women and men. As this book shows, the difficulty with this conceptualization is that macroeconomic policies interact with structural features of the economy to produce distinct outcomes for women and men. Heintz demonstrates through detailed non-technical discussion of clear everyday examples, that macroeconomic policies are gender blind rather than gender neutral and, as such, raise the possibility of replicating and reinforcing existing inequalities between women and men.

The US economy entered the twenty-first century exuberantly, with unemployment plunging to historic lows and families seeing the value of their assets grow to unimagined heights. A few years later, beginning in 2007, it all came crashing down. The US subprime mortgage crisis, which blossomed into a full-blown financial crisis a year later, made jobs evaporate and asset values disappear. On the employment front, men were hit hard, with unemployment rates reaching double digits. Women’s employment fell, but not as far as men’s. The press was quick to coin a new term to capture this economic assault on masculinity – the US was experiencing a “mancession”. Despite the initial alarm, the mancession was relatively short-lived. By the beginning of 2010, men’s employment already showed signs of recovery. Women weren’t so lucky. Women’s employment stagnated until almost a year and a half later, exhibiting signs of steady growth only in the second half of 2011.

These kinds of macroeconomic meltdowns have happened elsewhere. Between 1998 and 2002, Argentina experienced one of the worst economic disasters in its history, earning this crisis the moniker of the “Argentine Great Depression”. Unemployment reached record highs as Argentina’s economy shrank by over 18 per cent. Despite the decline in employment opportunities, women’s participation in the labour force actually rose modestly during the crisis (Montaño & Milosavljevic 2012). With formal jobs evaporating, employment in the informal sector became an important coping strategy (Whitson 2007). During crises, like Argentina’s, women’s work allows families to make ends meet as they try to weather the economic storm. Economic distress may trigger reactions that hurt women in other ways. Due to macroeconomic policy choices, Zimbabwe experienced extreme rates of inflation beginning in the late 1990s that squeezed households and threatened living standards. Incidents of domestic violence rose as the country’s economic crisis intensified (Masiyiwa 2017).

Economic crises are extreme events, yet they all illustrate an important lesson. Changes in the overall economic environment affect women and men differently. This holds true in non-crisis situations. Broad-based economic policies will have gender specific outcomes.

Feasibility studies are used to find the economic and financial viability of construction projects, because they are used by decision makers to examine all the cost and revenue implications of proposed schemes. They are systematic and logical and paint a hypothetical scenario of what may happen if the building were to be built. Although they are often used to justify project proposals, they are really only a rational approach to decision making. Feasibility studies are only as good as the assumptions that go into their calculations. They compare all the costs and all the revenues associated with a building proposal and are therefore often called cost– benefit analyses. Cost– benefit analysis allows a systematic approach to comparing the costs with the benefits of the scheme over the predicted life of a project or until it is demolished. Feasibility studies apply as much to private projects built for profit as they do to public sector projects built for the public good.

In construction, a building project can be defined as a development, in which a client engages a contractor to assemble materials and components to create a durable structure, usually on a particular site. The contractor’s client is the developer, who brings together the land, assembles the construction team, arranges the finance and takes on the commercial and financial risk for the proposed project. The construction team can include funders, architects, structural engineers, quantity surveyors, building contractors and property or real estate advisors and consultants, as well as the many specialist firms required for their technical skills and know- how. An important element of the whole construction team is the labour force employed by the various participating organizations, whose efforts and skills collectively transform the site and materials into finished buildings.

Each project is discrete: it has a beginning, a middle and an end. One common perception of the construction industry is that it is temporary in nature and employment in the building industry is insecure and irregular. This is not necessarily the case, although it is true that individual workers can find themselves working irregularly, with periods of work followed by periods of unemployment, but – as in every industry – skilled workers find it easier to get work than their less skilled colleagues.

The Gulf states have come a long way just in the years since the start of the new millennium, and much further still since Dubai began its experiment in conditional but aggressive state-led globalization in the mid-1980s. In differing ways and with different prospects for success, all six of the Arab Gulf states examined here are seeking to continue this transformation, informed by – though not merely copying – the example set by Dubai. These states entered the twenty-first century as wealthy economies and, despite the reforms that remain to be done, with largely stable political orders and economies. They are not likely to collapse in the near future, barring some dramatic unforeseeable event, despite the predictions of their demise that are sometimes made. In fact, the 2011 Arab uprisings affected the Gulf less than it did the republics, turning on its head the assumption that had reigned among observers until that point, that the monarchical systems of the Gulf were passé and that the future belonged to republican forms of government rather than monarchical ones.

This said, there are a range of global shifts taking place that will continue to test the Gulf’s leaders, put pressure on its economies, and impact its societies. Moreover, if these economies begin a period of more intense and deep economic reform, this will bring additional forces to bear on the subregion. Indeed, the pace of change across the subregion may well accelerate in the coming years, even though the basic dynamics underlying these political economies – rentierism, state capitalism, top-down strategies of elite consensus-building – will probably govern these systems for as long as hydrocarbons dominate them.

CONTINUING AND EMERGING ENERGY ISSUES

Although the centrality of oil and gas in the political economies of the Gulf is not something that is about to change any time soon, the global energy system is changing rapidly, bringing with it a new set of challenges for hydrocarbon exporters such as those of the Gulf.

As recently as the early 2000s, a fear in the subregion, and in oil importing states even more so, was of “peak oil”.