Socio-demographics, political attitudes and informal sector employment: A cross-country analysis

• Published in: Economic systems 2018-12, Vol.42 (4), p.556-568
• Main Authors: Başbay, Mustafa Metin, Elgin, Ceyhun, Torul, Orhan
• Format: Article
• Language: English
• Subjects: Confidence in institutions; Political participation; Shadow economy; Tax morale
• ISSN: 0939-3625; 1878-5433
• DOI: 10.1016/j.ecosys.2018.03.003

•Socio-demographic characteristics are strong correlates of informal sector employment.•The preference for a strong state is positively correlated with informal sector employment.•Political participation is negatively correlated with informal sector employment.•Individual norms are negatively correlated with informal sector employment. In this paper, we empirically investigate the relationship between informal sector employment and micro-level socio-demographic characteristics, political acts and attitudes, and individual norms. Using self-reported individual micro-level data from the World Values Survey for seven developing countries (China, Ecuador, Egypt, Mexico, Peru, South Africa and Yemen), our cross-country regressions and principal component analysis reveal that socio-demographic characteristics of individuals are strong predictors of their informal sector employment. Our estimations further document that individual preferences for an economically strong, interventionist and egalitarian state and confidence in state and political institutions are positively and significantly correlated with informal sector employment, whereas variables associated with confidence in free market institutions and support for competition are negatively and significantly correlated with informal sector employment. We also show that individuals who participate either actively or inactively in peaceful and lawful political processes are significantly less likely to work in the informal sector. Finally, we document that individual norms, such as religiosity and tax morale, are negatively correlated with informal sector employment. Throughout our analysis, instead of having to rely on ad-hoc informality categorizations of third parties, we base our measurement of informal sector employment directly on the self-evaluation of individuals, who have the best information on the degree of their informality.