Measuring the Global Shadow Economy

Measuring the Global Shadow Economy

The Prevalence of Informal Work and Labour

Colin C. Williams and Friedrich Schneider

This book brings together two leading researchers in the field to provide a comprehensive overview of the shadow economy from a global perspective. Reviewing the advantages and disadvantages of different ways of measuring the informal sector, the authors evaluate its size and key determinants across the world. Williams and Schneider clearly establish the persistence and prevalence of the shadow economy, analysing the narrowness of existing policy approaches and explaining how these fail to address the key factors for its existence and may even exacerbate the problem.

Chapter 2: Measuring the shadow economy: a review of indirect methods

Colin C. Williams and Friedrich Schneider

Subjects: economics and finance, labour economics, public finance, social policy and sociology, labour policy


Estimating the size of a shadow economy is a difficult and challenging task. When measuring the shadow economy, two contrasting methods are used. On the one hand, there are direct survey methods. These are microeconomic approaches that largely use surveys. The main disadvantages of this method are the flaws of all surveys. For example, the average precision and results depend greatly on the respondents’ willingness to cooperate, it is difficult to assess the amount of shadow work from a direct questionnaire, most interviewees hesitate to confess to fraudulent behavior and responses are of uncertain reliability, which makes it difficult to calculate a true estimate (in monetary terms) of the extent of the shadow economy. On the whole, moreover, these surveys capture the shadow labour activities in households but rarely in or between firms and do not provide value-added figures. However, they have one considerable advantage; they provide detailed information about the structure of the shadow economy, as well as the socio-economic characteristics and motives of those who work in the shadow economy, even if the results are very sensitive to the way the survey is designed and the questionnaire is formulated (see Mogensen, 1985; Mogensen et al., 1995; Pedersen, 2003).

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