What explains prevalence of informal employment in European countries : the role of labor institutions, governance, immigrants, and growth

This paper looks into institutional and other macro determinants of prevalence of informal dependent employment, as well as informal self-employment, in European countries, using European Social Survey data on work without legal contract in on 30 countries, covering years 2004-2009. Consistently with theoretical predictions, quality of business environment has a significant negative impact on prevalence of both types of informal employment. The share of non-contracted employees is negatively affected by perceived quality of public services and positively related to economic growth. Informal self-employment is positively related to growth in Europe at large, as well as in Eastern and Southern Europe. The level of GDP per capita also has a positive impact on the prevalence of informal employment in Europe at large and within Eastern and Southern Europe, whilst an opposite effect is found in Western and Northern Europe. Other things equal, the share of non-contracted employees in the labor force across European countries increases with the minimum-to-average wage ratio, with union density, with the share of first and second generation immigrants, and with income inequality, but falls with stricter employment protection legislation (EPL) and higher tax wedge on labor. Thus it appears that in Europe at large, labor cost effects of EPL and taxes are weaker than their impact via perceptions of job security and law enforcement, along with tax morale and the income effect. Yet the EPL effect on informality is positive (i.e., cost-related) when either Eastern and Southern Europe or Western and Northern Europe are considered separately. Furthermore, within Western and Northern Europe, the minimum wage effect is negative, whilst within Eastern and Southern Europe, the union effect is negative; in both cases, we offer a supply side explanation.Labor Markets,Labor Policies,Debt Markets,Economic Theory&Research,Markets and Market Access

Does Commuting Reduce Wage Disparities?

This paper shows that in the Baltic countries, commuting reduces urban- rural wage and employment disparities and increases national output. To quantify the effect of commuting on wage differentials, two sets of earnings functions are estimated (based on Estonian, Latvian, and Lithuanian Labor Force Surveys) with location variables (capital city, rural, etc.) measured at the workplace and at the place of residence. We find that the ceteris paribus wage gap between capital city and rural areas, as well as between capital and other cities is significantly narrowed by commuting in some cases but remains almost unchanged in other. Different outcomes are explained by country-specific spatial patterns of commuting, educational and occupational composition of commuting flows, and presence or absence of wage discrimination against rural residents in urban markets. A treatment effects model is used to estimate individual wage gains to rural—urban or inter-city commuting; these gains are substantial in most but not all cases. Wage effects of commuting distance, as well as impact of education, gender, ethnicity, and local labor market conditions on the commuting decision are also explored.commuting, wage disparities, earnings functions, Baltic countries

Informal Workers across Europe: Evidence from 30 Countries

The European Social Survey data are used to analyze informal employment at the main job in 30 countries. Overall, informality decreases from South to West to East to North. However, dependent work without contract is more prevalent in Eastern Europe than in the West, except for Ireland, the UK and Austria. Between 2004 and 2009, no cases found when unemployment and dependent informality rates in a country went up together, suggesting that work without contract is pro-cyclical in Europe. Dependent informality rate is inversely related to skills (measured by either schooling or occupation). The low-educated, the young (especially students), the elderly, and persons with disabilities are more likely to work informally, other things equal. In Southern and Western Europe, immigrants from CEE and FSU feature the highest dependent informality rate, whilst in Eastern Europe this group is second after minorities without immigrant background. In Eastern, Southern and part of Western Europe, immigrants not covered by EU free mobility provisions are more likely to work without contracts than otherwise similar natives. We provide evidence that exclusion and discrimination play important role in pushing employees into informality, whilst this seems not to be the case for informal self-employed. Both on average and after controlling for a rich set of individual characteristics, informal employees in all parts of Europe are having the largest financial difficulties among all categories of employed population (yet they fare much better than the unemployed and discouraged), whilst informal self-employed are at least as well off as formal employees.minorities, discrimination, human capital, informal employment, immigrants

Looking for the Workforce - the Elderly, Discouraged Workers, Minorities, and Students in the Baltic Labour Markets

This paper looks at the evolution of the labour markets in Estonia, Latvia, and Lithuania since the beginning of transition until 2003, with a particular focus on labour force participation. Do the marked differences in labour market policies between the countries result in different patterns of participation? What are the obstacles to and driving forces of participation? We find that relative contribution of participation and demographic trends to the dynamics of the labour force varied substantially both over the years and across the three countries. Participation, in turn, has been shaped by sometimes complicated interaction between educational choices, pension reform, policy changes, and external shocks. Resulting differences in trends and patterns are quite substantial, indicating that there is a room for increasing participation in each of the countries. Panel data analysis of determinants of participation and discouragement suggests that increasing after-tax real minimum wage has significant positive effect on participation and reduces discouragement in Lithuania. In Estonia, by contrast, positive effect of minimum wage on participation is found only for teenagers of both genders and for young males. Members of ethnic minorities, especially females, in all three Baltic countries are less likely to be in the labour force, other things equal.

Determinants of Inter-Regional Migration in the Baltic Countries

We show that Estonia, Latvia and Lithuania despite small geographical size feature considerable and persistent regional disparities. Registered migration rates have declined dramatically since the last years of Soviet era, yet they are high by international standards. Evidence from regional inflows and outflows in Latvia and from Estonian labour force survey is used to show that regional unemployment and especially wage differentials, as well as demographic factors, have a significant impact both on gross and net migration flows. Age and education effects are consistent with predictions of the human capital model of migration. Unemployed persons, as well as commuters between regions, are significantly more likely to become migrants in Estonia. Keywords: Migration, Regional Disparities, Regional Labour Markets.

Commuting in the Baltic States: Patterns, determinants and gains

To what extent does commuting reduce urban – rural and regional wage disparities? This question is addressed by estimating two sets of earnings functions (based on 2000 LFS data for Estonia, Latvia and Lithuania): with location variables (like capital city, rural etc.) measured at the workplace and at the place of residence. The main finding is that in Estonia and Latvia commuting has significantly narrowed the ceteris paribus wage gap between capital city and rural areas, as well as between capital and other cities. In Lithuania only residents of urban areas in the capital county manage to catch up significantly with the capital, while overall urban-rural gap remains almost unchanged. So different outcomes are explained by country-specific skills composition of rural – urban commuting flows and wage discrimination against rural residents in Lithuanian urban markets. Individual gains to rural – urban or inter-city commuting (both with and without correcting to selectivity) are uniformly big in Latvia but on average negligible in Lithuanian urban areas. --commuting,earnings functions,treatment effects model,wage disparities,Baltic States,ethnic minority

Social returns to commuting in the Baltic states

To what extent does commuting reduce regional wage disparities? This question is addressed by estimating two sets of earnings functions (based on 2000 LFS data for Estonia, Latvia and Lithuania): with geographical variables (like capital city, rural etc.) measured at the working place and at the place of residence. The main finding is that commuting has narrowed the ceteris paribus wage gap between capital city and rural areas by impressive 16 percentage points in Estonia and by 11 percentage points in Latvia, while the gap between capital and other cities has been reduced by 9 percentage points in both countries. In Lithuania gains from commuting are modest (3 percentage points) and go exclusively to residents of small cities. In the case of Latvia data allowed to estimate also effect of the distance between capital city and working place on wages, as well as individual returns to commuting in terms of the distance between living place and working place.

Looking for the Workforce: the Elderly, Discouraged Workers, Minorities, and Students in the Baltic Labour Markets

This paper looks at the evolution of the labour markets in Estonia, Latvia, and Lithuania since the beginning of transition (in some respects since 1996/1998) until 2003, with a particular focus on labour force participation. How did labour supply in the Baltic countries respond to changes in minimum wages, unemployment benefits and retirement regulation? Do the marked differences in labour market policies between the countries result in different patterns of participation? What are the obstacles to and driving forces of participation? We find that relative contribution of participation and demographic trends to the dynamics of the labour force varied substantially both over the years and across the three countries. Participation, in turn, has been shaped by sometimes complicated interaction between educational choices, retirement, policy changes, and external shocks. Resulting differences in trends and patterns are quite substantial, indicating that there is a room for increasing participation in each of the countries. Recent rates of transition from unemployment to employment and to inactivity are similar to those found in EU-15. Panel data analysis of determinants of participation and discouragement suggests that increasing after-tax real minimum wage has significant positive effect on participation and reduces discouragement in Lithuania. In Estonia, by contrast, positive effect of minimum wage on participation is found only for teenagers of both genders and for young males. Ethnic minorities, especially females, in all three Baltic countries are less likely to be in the labour force, other things equal.Labour supply; discouraged workers; labour market flows; minimum wages; ethnic minorities.

Informal workers across Europe : evidence from 30 European countries

The European Social Survey data are used to analyze informal employment in 30 countries, focusing on employees without contracts and on informal self-employed workers (who are distinguished from formal workers). Overall the size of informal employment decreases from South to West to East to North. However, working without a contract is more prevalent in Eastern Europe than in the West, except for Ireland, the United Kingdom, and Austria. Between 2004 and 2009, no cases were found when unemployment and dependent informality rates in a country went up together, suggesting that working without a contract is pro-cyclical in Europe. The dependent informality rate is inversely related to skills (measured by either schooling or occupation). Both in Southern and in Western Europe, the highest dependent informality rate is found among immigrants from Central and Eastern Europe and the Former Soviet Union, while in Eastern Europe this group is second after minorities without immigrant background. In the Southern and part of Western Europe, immigrants not covered by European Union free mobility provisions are much more likely to work without a contract than otherwise similar natives. The paper provides evidence that exclusion and discrimination plays an important role in pushing employees into informality, while this seems not to be the case for informal self-employed workers. Both on average and after controlling for a rich set of individual characteristics, informal employees in all parts of Europe are having the largest financial difficulties among all categories of the employed population (yet they fare much better than the unemployed and discouraged), while informal self-employed workers are at least as well off as formal employees. Finally, there is a negative and significant effect of individual-level satisfaction with the national government on the propensity to work without a contract in Eastern Europe, as well as in Western Europe.Labor Markets,Work&Working Conditions,Labor Policies,Labor Management and Relations,Tertiary Education

Latvia: Working Too Hard?

This paper provides an assessment of employment and working conditions in Latvia before and immediately after the EU accession. The issues addressed include self-employment, multiple jobs, fixed-term contracts, unreported wages, overtime, unsocial working hours, health and safety at work, social dialogue. The study combines different methods: statistical and econometric analysis of recent Labour Force Surveys and enterprise surveys (Earning Structure Survey and Survey of Occupations); firm level case studies; interviews with experts. Findings indicate that despite recent improvements in legal and institutional environment, as well as some progress in working conditions, significant proportions of workers are exposed to serious risks; health and safety conditions are slow to improve (several bottlenecks are identified). 15 percent of employees in 2003 were usually working 50 or more hours per week, and often this overtime was involuntary and/or unpaid. The analysis suggest that, other things equal, unpaid overtime is more likely to be found in small firms, for temporary workers, for workers with short tenure. Presence of a trade union improves workers’ prospect to be paid for eventual overtime work.employment contract, working conditions, overtime, transition