In comparison to 2006, the informal economy has reduced in 2020, with the biggest drop recorded during the 2009 crisis and the implementation of the minimum wage in 2012, according to Finance Think think-tank, informs MIA.
According to the research findings, the informal economy contributed 23.2% to the GDP in 2020, as opposed to 31.6% in 2006. It’s noticeable that the contribution of the informal economy to the GDP has been stagnating since 2013, mildly worsening in 2020 during the pandemic, which Finance Think assumes is due to the drop in the formal GDP, which was larger than the informal GDP.
The analysis includes two groups of factors with potential significance to the informal economy – tax policies and minimum wage policies. In terms of taxes, any kind of reform to direct taxes, primarily labor taxes, will have an adverse effect on the informal economy if not backed up by strengthened capacities of the tax authorities to collect taxes and fortifying the population’s tax morale.
In terms of the minimum wage, its implementation in 2012 contributed to a reduction in the informal economy, but the analysis shows that increasing the participation of the minimum wage in the average salary stimulates the informal economy.
It’s recommended for the minimum wage to increase in accordance with the productivity of the labor and parallel strengthening of the capacities to implement regulations in the sphere of work relations.
“Overall, findings show that it’s necessary to design long-term productivity increasing policies, through the creation and stimulation of a local competitive market via relaxation of the regulation and trade liberalization, through reforms in the educational system which will result in more qualified workforce, through assigning funds towards research and development, and increasing the public administration’s effectiveness in order to ease the burden on the private sector,” according to Finance Think.