Poster #151 - From Grey to Color: Do Public Spending and Digitalization Transform the Informal Economy?

• In Event: Saturday Poster Luncheon

Abstract

The eighth of the United Nations’ Sustainable Development Goals calls for decent work and economic growth—targeting various indicators of vulnerability and underdevelopment, such as the rates of informal work, unemployment, and youth not in education, employment, or training (NEET). Over half of adults worldwide are employed in the informal or grey economy, often associated with hazardous environments, lack of social protection, and low remuneration. Despite the market value of activities in the grey economy, extant research has only started to examine pathways for transforming such efforts into productivity. Formalization is a priority of governments worldwide, as they aim to end the cycle of poverty, improve social equity, and achieve economic growth. Thus, it contributes to the SDGs in several ways—from increasing gender equality to sustainable urban and economic development. As governments push toward online service delivery, this paper seeks to examine the impact of digitalization, innovation, and government capacity on formalization. Although digitalization has redefined the concept of work and restructured global supply chains, it could contribute to increased informality in certain industries and occupations. Without oversight, technological misuse amplifies disparities, such as wage gaps in the informal work performed by men versus women on digital and location-based platforms like Uber. Consequently, we hypothesize that digitalization will increase informality, but that overall innovation and budget size will decrease it. Drawing on data from 47 countries over the last 24 years (2000-2023), we find that innovation has significant effects in reducing informal labor for both genders in the aggregate economy. Yet, contrary to our expectations, digitalization reduces the likelihood of men’s informal labor—as well as women’s unemployment rates. Overall, both digitalization and innovation lead to formalization, potentially by redirecting attention and resources toward the creation of public value. Strong predictors for formalization also include total expenditure and equity in public services and education. Curiously, governments subject to higher accountability experience less incidences of youth NEET.

Authors

• Marjorie De la Cruz, Florida International University
  Presenting Author

• Milena I Neshkova, Florida International University
  Non-Presenting Co-Author