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Labor Laws and Shadow Economies: A Cross‐National Assessment
Author(s) -
Blanton Robert G.,
Peksen Dursun
Publication year - 2019
Publication title -
social science quarterly
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.482
H-Index - 90
eISSN - 1540-6237
pISSN - 0038-4941
DOI - 10.1111/ssqu.12685
Subject(s) - shadow (psychology) , argument (complex analysis) , economics , informal sector , work (physics) , politics , labor demand , labour economics , economy , law , political science , market economy , wage , mechanical engineering , psychology , biochemistry , chemistry , engineering , psychotherapist
Objective Toward better understanding the political economy of illicit economy, we examine the impact that labor laws have on illicit economic activity. Specifically, we posit that labor regulations are one of the key prospective benefits associated with formal work, and thus incentivize firms and individuals to participate in the formal, rather than illicit, sector. We further argue that the possible negative effect of labor laws on shadow economies is conditioned by countries’ institutional strength. Methods To test our hypotheses, we analyze time‐series, cross‐national data for over 100 countries from 1984 to 2012. Findings Results suggest that labor regulations are negatively related to shadow economic activity and the suggested impact of labor laws is particularly germane to countries with stronger institutional capacity. Conclusion Our argument and findings challenge the notion that regulations, particularly labor‐related regulations, induce more illicit economic exchanges.