European grant for research on informal economies

Dr Francesco Giumelli , associate professor of International Relations and International Organizations at the Faculty of Arts, and Dr Pim Geelhoed , associate professor of Criminal Law and Criminal Procedure at the Faculty of Law, are participating in an international research project on informal economies that was recently awarded a European grant of €3.8 million. The project funds 15 PhD students, two of whom are appointed at the University of Groningen: one in the Faculty of Arts and one in the Faculty of Law.

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Formal and informal economies

Every country has a formal economy, tracked in official figures that express things like national income, employment, purchasing power, and inflation. In addition, every country also has an informal economy. This includes all economic activities that are not visible in official figures, for example work for which no taxes are paid.

Two billion informal workers

How big an informal economy is varies from country to country, says Francesco Giumelli. ‘In some countries, up to 80 percent of the economy is informal. These are mainly countries in Africa, Asia, and Latin America: this is where 93 percent of the nearly two billion people worldwide who are employed in the informal economy live.’ The World Bank and the International Labour Organization also estimate that another 500 million to 1.5 billion people are at risk of entering the informal sector as a result of the COVID-19 pandemic.

Risks of informal work

The problem with the informal sector is that does not guarantee any supervision, working conditions, or laws. Pim Geelhoed: ‘This puts people who work in the informal sector at risk of underpayment, an unsafe workplace, unhygienic working conditions, exploitation—you name it. Moreover, it is often society’s vulnerable people who work in the informal sector: women, migrants, and young people are overrepresented and more at risk of abuse. In addition, an informal economy offers great opportunities for illegal trade in drugs, endangered species, and precious commodities. This is always accompanied by corruption, fraud, and money laundering, which are difficult to combat due to the informal nature of the economy.’

Lack of government clout

Besides the risks and uncertainty for the workers themselves, a large informal economy also affects the clout of a government. ‘A large informal economy means that few taxes are paid, which in turn means that the government has little resources to invest in infrastructure, schools, and hospitals, and few options to properly address social, economic, and environmental issues,’ says Giumelli.

Key challenge of the 21st century

To better address the negative impacts of informal economies, more knowledge is needed. Giumelli: ‘Much has been said about the risks of informal economies. Governments and international organizations have recognized that informal work is one of the key challenges of the 21st century. Moreover, there have been a number of attempts to measure different aspects of informality, and statements have been made about the importance of protecting workers in the informal sector. But this has not resulted in concrete instructions, guidelines, or evidence-based policies for addressing the informal sector globally.’

Measuring the size of the informal sector

The aim of the research project is to close the gap in knowledge about the informal sector, raise issues, and come up with policy proposals that provide a sustainable solution to the problems that informal economies result in. ‘In 15 countries throughout Asia, Africa, and Latin America, PhD students will conduct research on the size of the informal sector,’ says Geelhoed. ‘They will use the same methodology when collecting the data, in order to get a clear picture of the situations in the various countries.’

Sustainable solutions

Furthermore, together with partner organizations in Africa, Asia, and Latin America, a cross-regional training course on informal economies is being set up that will teach the next generation of experts about informal economies, and give them tools to not only identify the issues in a country, but also to address them in order to come up with sustainable solutions.

About the research project

The PRESILIENT research project was awarded a Marie Skłodowska-Curie Action, a grant made available by the European Commission for European academic cooperation projects. The Industrial Doctoral Network brings together organizations from 28 countries, led by Dr Abel Polese of Dublin City University. The project starts in the spring of 2023.