Why do workers operate in the undeclared economy?

What is it about?

When explaining participation in undeclared work, the dominant theorisation views undeclared workers as rational economic actors participating in undeclared work when the benefits exceed the expected costs of being caught and punished. An alternative theorisation views participants’ in the undeclared economy as social actors driven into undeclared work by their lack of vertical trust (in governments) and horizontal trust (in others). To evaluate these perspectives, this paper reports data from 27,565 interviews conducted for a 2019 Eurobarometer survey on undeclared work in 28 European countries.

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Photo by Andres Siimon on Unsplash

Photo by Andres Siimon on Unsplash

Why is it important?

This reveals that raising the expected costs of being caught and punished has no significant impact on the likelihood of conducting undeclared work. However, greater vertical and horizontal trust have a significant impact on preventing participation in undeclared work, and vertical and horizontal trust also moderate the effectiveness of using penalties and detection to deter engagement in undeclared work. The implication for theory is that a social actor perspective is advocated. The result is a call for a policy shift away from the dominant deterrence approach that increases the penalties and risks of detection, and towards a policy approach focused on improving vertical and horizontal trust.

Perspectives