1. Regulation of the informal economy: policy issues
Panel discussion
Sean M. Dougherty, OECD Economics Department (Chair):
“Skills, Entrepreneurship, and the Rule of Law”
Gérard Duchêne, UPEC
“Enforcement and compliance, taxes, entry costs”
Alexandre Kolev, OECD Development Centre (formerly ILO)
“Labour supply, human capital enhancement, social protection”
Thanks, these are my own personal thoughts, NOT the OECD’s.
6 June 2013

2. Higher income countries have less informality
Informality is associated with lower incomes per capita (using Schneider measure)
Source: Economic Survey of Mexico, May 2011 and Brandt (2011)

3. Greater formalisation yields productivity dividends
Labour productivity is found to increase with degree of formalisation in TURKEY
Beyond evidence in broad cross-country studies on informality’s effects, there is country-specific evidence...
Source: Economic Survey of Turkey, July 2012 and Gaunec (2012)

4. Informality and firm size are tightly intertwined
Source: Klenow (2012)

5. Partly through firm-level scale economies, for TFP
Gains in total factor productivity from larger establishment size in INDIA
Source: Dougherty, Herd and Chalaux (2009)

6. Informality is a problem for developing economies
But measurement is very difficult, especially across countries
Even within countries, different concepts can yield wildly different estimates
For Mexico, is informality one-third or two thirds of employment?
ILO vs. National definition

7. Informality concepts can yield very different results
Informality measures using various concepts for the mid-2000s
Source: Going for Growth 2010 and Conway, Dougherty and Radzwill (2010)

8. What policy package to use to address informality?
“There is no silver bullet to address informality.”
OECD Economic Survey of Mexico, May 2013
A package of policies is needed:
Enhance education/skills
Lower entry costs, yet reduce microenterprises
Boost foreign investment, stock of FDI
Strengthen legal institutions, less corruption
Make EPL reforms, shorten dispute times
Less evidence for specific tax policies (in MEX)
=>Plus more development, higher incomes

9. Easing job protection can help to control informality
Source: Economic Survey of India, 2007 and Dougherty (2009)

10. Panel discussion questions
Many country-specific factors at play
Policies and national tax/labour institutions vary a lot
New empirical evidence is needed
Sub-national analysis quite promising...
=> Reducing barriers to formality (“boosting entrepreneurship”) seems more promising than making informality more costly (“enforcement”)
But in the long run, education may be the solution