Evaluating the internal dualism of the informal sector: evidence from the European Union

Purpose To transcend the current debates about whether participation in the informal sector is a result of informal workers “exclusion” or their voluntary “exit” from the formal sector, the aim of this paper is to propose and evaluate the existence of a dual informal labour market composed of an exit-driven “upper tier” and exclusion-driven “lower-tier” of informal workers. Methodology To do this, data from a 2013 Eurobarometer survey involving 27,563 face-to-face interviews across the European Union is reported. Findings The finding is that in the European Union, there is a dual informal labour market with those participating in the informal sector due to their exclusion from the formal sector being half the number of those doing so to voluntarily exit the formal sector. Using a logistic regression analysis, the exclusion-driven “lower tier” is identified as significantly more likely to be populated by the unemployed and those living in East-Central Europe and the exit-driven “upper tier” by those with few financial difficulties and living in Nordic nations. Research implications The results reveal the need not only to transcend either/or debates about whether participants in the informal sector are universally exclusion- or exit-driven, and to adopt a both/and approach that recognises a dual informal labour market composed of an exit-driven upper tier and exclusion-driven lower tier, but also for wider research on the relative sizes of these two tiers in individual countries and other global regions, along with which groups populate these tiers. Originality/value This is the first evaluation of the internal dualism of the informal sector in the European Union.