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Labor Laws and Shadow Economies: A Cross‐National Assessment

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  • Robert G. Blanton
  • Dursun Peksen

Abstract

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.

Suggested Citation

  • Robert G. Blanton & Dursun Peksen, 2019. "Labor Laws and Shadow Economies: A Cross‐National Assessment," Social Science Quarterly, Southwestern Social Science Association, vol. 100(5), pages 1540-1565, August.
    • Handle: RePEc:bla:socsci:v:100:y:2019:i:5:p:1540-1565
    DOI: 10.1111/ssqu.12685
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    Cited by:

    1. Messerschmidt, Luca & Janz, Nicole, 2023. "Unravelling the ‘race to the bottom’ argument: Foreign direct investment and different types of labour rights," World Development, Elsevier, vol. 161(C).
    2. Selçuk Akçay & Emre Karabulutoğlu, 2021. "Do remittances moderate financial development–informality nexus in North Africa?," African Development Review, African Development Bank, vol. 33(1), pages 166-179, March.
    3. Luca Messerschmidt & Nicole Janz, 2020. "Unravelling the 'race to the bottom' argument: How does FDI affect different types of labour rights?," Munich Papers in Political Economy 05, Munich School of Politics and Public Policy and the School of Management at the Technical University of Munich.
    4. Robert G. Blanton & Dursun Peksen, 2021. "A Global Analysis of Financial Crises and the Growth of Informal Economic Activity," Social Science Quarterly, Southwestern Social Science Association, vol. 102(4), pages 1947-1965, July.
    5. Chletsos, Michael & Sintos, Andreas, 2021. "Hide and seek: IMF intervention and the shadow economy," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 292-319.

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