BEYOND HIERARCHICAL REPRESENTATIONS OF THE FORMAL/INFORMAL EMPLOYMENT DUALISM: Some lessons from Ukraine

Why is informal employment often portrayed as a weak and marginal realm that has largely negative consequences for economic development and social cohesion? And why is the separate realm of formal employment frequently depicted as not only extensive and totalising but also the pathway to economic advancement and social integration? This paper will reveal that these starkly contrasting representations of formal and informal employment directly derive from applying to paid work what Derrida (1967) calls a ‘hierarchical binary’ mode of thinking, in which all activity is squeezed into one side or other of some dualism, and then the two sides temporally and normatively sequenced with the superordinate (namely formal employment in this case) read as in the ascendancy and endowed with positive attributes, and the subservient other (informal employment) as weak, marginal and a negative phenomenon.

This paper evaluates critically such a hierarchical representation of formal and informal employment. To commence, the first section will review the continuities and changes in thought on informal employment. In doing so it will display that although the binary hierarchical portrayal of informal employment as a separate, weak and marginal sphere has been widely refuted, the view that it has largely negative consequences for economic development and social cohesion has been so far subjected to much less scrutiny. To start to fill this gap, the second section will report the findings of a survey of informal employment conducted in Ukraine during late 2005 and early 2006. This will not only provide further evidence to refute the binary hierarchical representation of informal employment as a weak, marginal and separate sphere but also by unpacking the multiple types of informal employment, will reveal how although some forms are accurately depicted by the conventional negative representation of such work, others have more beneficial implications for economic development and social cohesion. In the final section, therefore, a call will be made for a finer-grained approach towards informal employment that recognises its plurality of forms and their varying consequences.

Before commencing, however, informal employment needs to be defined. Although such work has been variously referred to as the ‘non-structured’, ‘non-official’, ‘non-organised’, ‘a-normal’, ‘hidden’, ‘a-legal’, ‘black’, ‘submerged’, ‘non-visible’, ‘shadow’, ‘a-typical’ or ‘irregular’ sector or economy, all these adjectives denote informal employment by what it is not – what is absent from, or insufficient about, such work – relative to formal employment, and the particular absence or insufficiency indicated by the adjective is in most cases viewed as a negative feature of this work. Indeed, all attempts to define informal employment denote it in this manner; by what it is not. Since this is what it is, no other definition is possible. Informal employment is the sale of goods and services that are licit in every sense other than that they are unregistered by, or hidden from, the state for tax, benefit and/or labour law purposes (Thomas 1992; European Commission 1998; Williams and Windebank 1998; Grabiner 2000; ILO 2002). If economic practices possess other absences or insufficiencies, such as that the goods and services are illegal or that the exchange is not monetised, then this endeavour is not defined as ‘informal employment’ but instead as ‘criminal activity’ and ‘unpaid work’. In consequence, informal employment possesses only one absence or insufficiency and this is that it is not declared to the state for tax, social security and labour law purposes.

To review the changes and continuities in thought regarding the formal/informal employment dualism in general, and informal employment more particularly, our conceptual lens is the recognition that conventional discourses on the formal/informal employment dualism are grounded in what Derrida (1967) calls ‘hierarchical binary’ thought and that the vast majority of recent work can be seen as an attempt to deconstruct various aspects of this way of thinking. Here, therefore, firstly the way in which the formal/informal employment dualism has been conventionally depicted in hierarchical binary terms will be reviewed, followed by an evaluation of how this representation has been so far transcended. This will reveal that although various aspects of this binary hierarchical depiction of formal and informal employment have been deconstructed, some key facets remain that have so far received little attention.

For Derrida (1967), western thought is dominated by a mode of thinking in which, firstly, all objects/identities/subjects are marshalled into one side or other of some dichotomy and secondly, the two sides read in a hierarchical manner with the extensive superordinate ‘us’ privileged over the separate, much weaker and residual subordinate ‘other’. To see how the formal/informal employment dualism in general, and informal employment in particular, has been normatively represented in hierarchical binary terms, one has only to consider the classic ‘dual economy’ portrayal of formal and informal employment (Boeke 1942; Lewis 1959; Geertz 1963; Harris and Todaro 1970). This depicts these two realms as separate, responding to different stimuli and bearing distinct internal logics (see Fernandez-Kelly 2006) and temporally and hierarchically sequences these two forms of work existing in the present. Whilst informal employment is portrayed as a residue or leftover of a pre-capitalist mode of production and its continuing presence as a sign of ‘under-development’, ‘traditionalism’ and ‘backwardness’ (Geertz 1963), formal employment is portrayed as growing and in the ascendancy, and normatively read as a sign of ‘progress’, ‘development’, ‘modernity’ and ‘advancement’ (Lewis 1959).

Firstly, therefore, and reflecting the representation of the subordinate ‘other’ in binary hierarchical thought, informal employment in this ‘dual economy’ thesis is depicted as in long-term decline, a pre-capitalist vestige of the past awaiting incorporation into capitalism. It is viewed as primitive or traditional, stagnant, marginal, residual, weak, and about to be extinguished; a leftover of pre-capitalist formations that the inexorable and inevitable march of formalisation will eradicate. Such work is thus portrayed as existing in the interstices, or as scattered and fragmented across the economic landscape. Formal employment, in contrast, is represented as systematic, naturally expansive and extensive (see Latouche 1993).

Besides viewing such work as weak and residual, this ‘dual economy’ thesis secondly represents informal employment as discrete and entirely separate from formal employment. Those engaged in informal employment are depicted on the one hand, as wholly off-the-books businesses and on the other hand, there has been a strong and resilient view, characterised by the ‘marginality thesis’, that represents individuals engaged in informal employment as those marginalised from formal employment (e.g., Castells and Portes 1989; De Soto 1989; ILO 2002). As such, the formal and informal realms are read as a dual labour market where one set of individuals and firms engage in formal employment and another (‘othered’) set of individuals and firms participate in informal employment (e.g., Tokman 1989), each with their own internal logics.

Third and finally, and reflecting how hierarchical binarism normatively represents the subordinate other in a negative manner, informal employment in this ‘dual economy’ reading is persistently and recurrently depicted solely in terms of its deleterious impacts on economic development and social cohesion, and its undesirable ‘backward’ and ‘regressive’ characteristics such as its exploitative, low-paid and sweatshop-like nature (e.g., Grabiner 2000; Gallin 2001; Bajada 2002). The notion that it might also have more positive impacts, as will be discussed below, is not considered.

In sum, in hierarchical binary thought, portrayed in the classic ‘dual economy’ thesis, informal employment is represented as a pre-modern marginal realm composed of wholly off-the-books businesses and workers, as possessing negative impacts and a hindrance to ‘progress’. As will now be revealed, however, a wealth of literature over the past decades has deconstructed various facets of this conventional ‘dual economy’ representation.

A first way in which this ‘dual economy’ thesis has been transcended is that the representation of informal employment as marginal, residual and weak, and the formal economy as growing, strong and extensive, has come under considerable criticism in recent decades due to the recognition that in the contemporary era, informal employment is growing rather than declining in numerous countries (e.g., Schneider and Enste 2000; ILO 2002; Wallace and Haerpfer 2002; Renooy et al.2004). Rather than depict informal employment as ‘a mere “lag” from traditional relationships of production’ (Castells and Portes 1989: 13), one prominent stream of thought recognising its growth is the ‘post-Fordist’ literature. This rejects the view that informal employment is separate from formal employment and instead reads such work as an integral component of contemporary de-regulated global capitalism that is growing not only due to employers seeking to reduce costs by adopting informal work arrangements but also due to the off-loading of the social reproduction of those no longer required by capital (e.g., Castells and Portes 1989; Sassen 1997; ILO 2002).

Furthermore, recent years has seen considerable progress made on blurring the view of formal and informal employment as separate or discrete spheres. Not only has it been revealed that formal employees are sometimes paid part of their wage on a cash-in-hand basis, known as ‘envelope wages’ (Neef 2002; Sedlenieks 2003), displaying how informal work arrangements have become an inherent component of capitalist production, but numerous studies have revealed how these forms of work do not even occupy separate spaces in the economic landscape (Smith 2002, 2004; Pavlovskaya 2004; Rose 2005; Chen 2006; Harney 2006a, b; Jones et al. 2006; Smith and Stenning 2006; Trinci 2006).

Although transcending the depiction of informal employment as weak and separate, however, this popular ‘post-Fordist’ reading has not questioned other facets of the conventional ‘dual economy’ thesis. It has continued to assume that informal employment is a marginal sphere and also that it impairs economic development and social cohesion. Such work is seen to be populated by the marginalised and read as low-paid, exploitative and sweatshop-like in character and a largely negative phenomenon that has deleterious impacts on economic development and social cohesion.

Others, however, have begun to evaluate critically these facets of its depiction. In recent decades, for example, there has been a widespread refutation of the ‘marginality’ thesis that views workers and enterprises in a dichotomous manner as participating in either informal or formal employment. A wide range of studies conducted in different countries reveal that the majority of informal employment is conducted by formal enterprises undertaking a portion of their trade on an informal basis (e.g., Ram et al. 2002a, b; Small Business Council 2004; Williams 2004; Ghezzi 2006), that those in formal employment are more likely to engage in informal employment than those who are jobless (Foudi et al. 1982; Pahl 1984; van Geuns et al. 1987; Mingione 1991; Fortin et al.1996; Williams and Windebank 1998; Williams 2004) and that lower-income groups benefit less from informal employment than more affluent groups, at least in the advanced economies (e.g., van Geuns et al.1987; Williams and Windebank 1998; Williams 2004, 2006).

Is it also the case, therefore, that the attribution of negative characteristics to informal employment and positive attributes to formal employment has been transcended? It might be assumed that with recognition that in advanced economies and sometimes beyond, relatively affluent groups engage in informal employment, commentators would have begun to rethink some aspects of its negative portrayal, such as whether it is always exploitative, low-paid and sweatshop-like in nature. However, on the whole, such attempts have been few and far between. Indeed, of all of the negative attributes attached to informal employment, it is only the low-paid character of such work that has been questioned. The outcome is that it is now widely recognised that informal wage rates display just as wide a distribution as those in formal employment (e.g., Thomas 1992; Williams and Windebank 1998; Williams 2004; Fortin and Lacroix 2006). Less questioned, however, have been the portrayals of such work as exploitative and sweatshop-like in character, the view that informal employment has overwhelmingly deleterious impacts and the representation of this work as damaging so far as economic development and social cohesion are concerned.

Until now, it is primarily neo-liberals who have advocated a more positive reading of informal employment (Sauvy 1984; De Soto 1989, 2001). For them, such endeavour is a form of popular resistance to an unfair and excessively intrusive state and informal workers are heroes casting off the shackles of an over-burdensome state. As De Soto (1989: 255) asserts, ‘the real problem is not so much informality as formality’. Indeed, it is perhaps precisely due to the association of more positive visions of informal employment with a neo-liberal perspective that commentators of other political persuasions have seemed wary of highlighting its potential positive impacts.

In recent years, nevertheless, more positive depictions have slowly begun to be voiced outside of neo-liberal thought. Following the identification that many of those engaged in informal employment operate on an own account (self-employed) basis (e.g., Renooy 1990; MacDonald 1994; Fortin et al. 1996; Leonard 1998; Williams and Windebank 1998; ILO 2002; Williams 2004, 2006; Trinci 2006), for example, questions have started to be raised amongst a range of commentators from other positions on the spectrum of political thought about whether informal employment should always be viewed as a hindrance to development and whether greater emphasis needs to be placed on some of its more potentially positive features, notably its role in enterprise development, especially as a platform for new self-employed ventures (e.g., Roberts et al. 2000; Tabak 2000; ILO 2002; Small Business Council 2004; Williams 2004, 2006; Baculo 2006; Harney 2006a, b). Unlike neo-liberals, however, the intention has not been to advocate the de-regulation of the formal economy. Instead, such informal entrepreneurship has been depicted as possessing positive attributes but only if it can be brought into the legitimate realm. Despite this fledgling recognition that informal employment might possess potentially positive attributes, however, and with the exception of one study of English localities (Williams 2004, Williams and Windebank 2005), few empirical studies have sought to evaluate the different types of informal employment and whether these different varieties contribute in any positive way to economic and social development. Here, therefore, we begin to fill this gap.

There is little doubt that the collapse of the Soviet Union has led to profound economic difficulties throughout the ex-socialist bloc, with many post-socialist countries suffering severe problems in making the transition to a market economy. Ukraine, the second largest successor state of the former Soviet Union, has been no exception. Unemployment and labour market insecurity for many became a reality overnight (see Standing 2005; Cherneyshev 2006; Lehmann and Terrell 2006). Indeed, official employment declined by about one-third between 1990 and 1999 (Cherneyshev 2006). And despite the euphoria surrounding the ‘orange’ revolution in the form of a ‘turn to the West’ in Ukraine, severe economic problems have remained.

‘Bribe taxes’, administrative corruption and ‘informal taxation’ are rife in everyday life and are significant barriers to both economic growth and the formalization of economic practices (Round and Kosterina 2005; Hanson 2006). Indeed, in global surveys, Ukraine is often found to be suffering from some of the highest levels of corruption in the world. The World Bank's ‘Doing Business-2006’ Survey ranked Ukraine 124th of the 155 countries rated in terms of positive business climate, arguing that corruption and over-zealous bureaucracy stymies economic development. A Transparency International (2005) survey, meanwhile, states that in Ukraine, 82 percent of respondents had recently paid a bribe to access services/goods to which they were entitled, the highest figure in the world. Although Anderson and Gray (2006) argue that the level of corruption is decreasing they acknowledge there is still much work to be done.

It is perhaps little surprise, therefore, to find that when proxy indicators are used to measure the magnitude of informal employment, it has been estimated to be equivalent to 47.3–53.7 percent of GDP using physical input proxies (Schneider and Enste 2000) and 55–70 percent using currency demand (Dzvinka 2002). Indeed, official Ukrainian government estimates, drawing upon these indirect proxy methods, assert that some 55 percent of Ukraine's GDP is produced in the informal economy (NCRU 2005). In 2005, furthermore, and according to official state figures, approximately 10 million Ukrainians, around 20 percent of the population, were receiving incomes below the state set subsistence minimum level. As Round and Kosterina (2005) highlight, however, even this subsistence minimum figure has little relevance since it only allows for an extremely basic diet, for clothes to be replaced every 3–5 years and assumes that the ‘market’ runs efficiently (i.e., that benefits and subsidies can be accessed). The reality, as Rose (2005) identifies, is that 73 percent of Ukrainians receive insufficient from their main income to buy what they need to survive. Until now, however, and beyond the New Democracies Barometer (NDB) surveys conducted between 1992 and 1998 (Wallace and Haerpfer 2002; Wallace and Latcheva 2006), no known contemporary studies have empirically surveyed the coping practices people use to get-by, and more particularly the extent and nature of informal employment, in Ukraine.

In consequence, in late 2005 and early 2006, interviews were conducted with 600 households to survey coping practices in general, and the extent and nature of informal employment more particularly. Given that previous studies reveal significant disparities in the level of informal employment between urban and rural as well as affluent and deprived populations (van Geuns et al. 1987; Renooy 1990; Leonard 1998), maximum variation sampling was used to select four contrasting localities. Firstly, and in the capital of Kiev, an affluent area was chosen, namely Perchersk, heavily populated by government officials and the new business class, along with a deprived neighbourhood, namely Vynogardar, comprised of dilapidated Soviet-era housing with high unemployment and widespread poverty. Continuing the process of maximum variation sampling, a deprived rural area near Vasilikiv was then chosen, which heavily relied on a nearby refrigerator manufacturing plant for its employment until it closed nearly 10 years ago and since then has suffered high unemployment, and finally, a town on the Ukrainian/Slovakia border was selected, Užhgorod, which is the capital of the Carpathian region and where a concern exists amongst its population that inflated prices due to cross-border trade mean that they cannot afford many goods and services.

Within each locality, a spatially stratified sampling methodology was then employed to select households for interview (Kitchen and Tate 2001). In each of the four localities, 150 households were interviewed (600 in total). In consequence, if there were 3,000 households in the area and 150 interviews were sought, then the researcher called at every 20^th household. If there was no response and/or the interviewer was refused an interview, then the 21^st household was visited, then the 19th, 22nd, 18th and so on. This provided a spatially stratified sample of each area. Table 1 provides a socio-economic profile of the households interviewed in each locality.

Given how previous research indicates that respondents find it difficult to recall instances of informal employment when relatively unstructured open-ended interviews are used, and that the resultant data is often not comparable (e.g., Leonard 1994; Williams 2004), the decision was taken to use a structured interview. Besides gathering background data on gross household income, the employment status of household members, their employment histories, ages and gender, firstly, and drawing upon a question used in the NDB surveys (Haerpfer and Wallace 2002; Williams 2005; Wallace and Latcheva 2006), respondents were asked about the forms of work that they most rely on to maintain their living standard. Following this, and using the now well-established ‘household work practices’ method (Wallace 2002) to analyse how households get-by and whether informal employment is used, secondly, the sources of labour that the household last used to complete 25 common domestic services were analysed and thirdly, whether they had undertaken any of these 25 tasks for others (either in a paid or unpaid informal basis) during the past year. Fourthly, and to analyse in more depth the issue of informal employment, open-ended questions were asked about such work conducted and its relative importance to their household income and fifth and finally, and using five-point likert scaling, attitudinal questions concerning their ability to draw upon help from others and their views of the economy, politics, everyday life and their future prospects.

Below, and in order to evaluate critically the hierarchical representation of the formal/informal employment dualism in the ‘dual economy’ thesis, the findings are reported with regard to firstly, the extent of informal employment, secondly, whether informal employment is marginal and separate from formal employment and third and finally, whether it is always appropriate to depict such work as having negative impacts on economic development and social cohesion.

Table 2 reveals that informal employment is not a weak and marginal realm, and nor is the formal economy a strong and extensive sphere as depicted in the ‘dual economy’ thesis. Asking respondents about the form of work most important to their standard of living, along with that which is second most important, just 61 percent of households asserted that they were primarily reliant on the formal economy for their living standard, meaning that well over one-third (39 percent) of households are not. Even the majority of households relying chiefly on the formal economy, moreover, reported that they additionally rely on some other form of work; less than 1 in 10 (9.5 percent) households depend on the formal economy alone. Most rely on mixed economies of formal and informal work. To view the formal economy as strong and extensive is thus a misnomer. It is one of a plurality of economic practices that households draw upon for their livelihoods intimating that from the household perspective, the formal and informal spheres are far from separate in lived practice.

How extensively used is informal employment as a principal coping practice? The finding is that around one in six (16.4 percent) households relies primarily on informal employment for their standard of living. Is its usage increasing or decreasing over time? Comparing these 2005/06 data with earlier data collected in Ukraine in 1992 and 1998 (Wallace and Haerpfer 2002; Wallace and Latcheva 2006), the finding is that there has been an increasing reliance on the formal economy (26 percent of households in 1992, 57 percent in 1998 and 61 percent in 2006), a decline in reliance on the household economy (59, 33 and 12 percent) and a growth in dependence on informal employment (5, 8 and 16 percent). This intimates if correct, that as the transition process has continued, there has been an on-going shift towards monetary exchange to secure a livelihood and also that a reliance chiefly on informal employment has grown over time.

These data, however, solely analyse the primary sphere relied on to secure a livelihood. When the data are analysed on the secondary contributor to livelihoods, the degree to which households depend on informal employment becomes more apparent. As Table 2 displays, besides the 16.4 percent primarily relying on informal employment, a further 23 percent of all households assert that informal employment is the second most important contributor to their standard of living (i.e., this excludes the 1.5 percent primarily and secondarily reliant on informal employment so as to avoid double counting). In total, therefore, some 39.4 percent of all Ukraine households cite informal employment as either the principal or secondary contributor to their livelihood. The conventional dual economy depiction of informal employment as a residual and weak realm is thus a misnomer. It is a core means of securing a livelihood for a large proportion of Ukrainian households.

In conventional hierarchical depictions of the formal/informal employment dualism, portrayed by the ‘dual economy’ thesis, the tendency was to represent people as either informal or formal workers. This is clearly expressed in the ‘marginality thesis’ which holds that informal employment is concentrated amongst populations marginalised from the formal economy. However, this Ukraine survey refutes this view of informal employment as existing in the margins and separate from formal employment.

As Table 3 reveals, informal employment is not concentrated amongst those excluded from the formal labour market. Just 12.5 percent of households with nobody in formal employment cited informal employment as their primary strategy, but 23.5 percent of households with one formal wage earner and 13.9 percent of households with multiple formal wage earners. Breaking this down further by analysing whether it is those in formal employment in these households who engage in informal employment, the finding is that in multiple-earner households, it is in 96 percent of cases those with formal jobs who engage in informal employment, while in single-earner households, it is in 70 percent of cases the formal wage worker who also undertakes the informal employment. Therefore, informal employment is not a form of work confined to those excluded from the formal labour market, as suggested in the dual economy thesis.

Reinforcing this, of all households relying primarily on informal employment for their livelihood, just 6 percent were households with nobody in formal employment (13 percent of all households surveyed). Some 51 percent of households primarily relying on informal employment are multiple-earner households (58 percent of all households surveyed) and the remaining 43 percent are single-earner households (29 percent of surveyed households). In consequence, to depict informal employment as the province of populations marginalised from formal employment is erroneous. Indeed, many other surveys, albeit conducted in western economies, come to the same conclusion (for a review, see Williams 2004).

It is important, moreover, to highlight the gendered nature of informal employment. Reflecting the dual economy depiction of informal employment as conducted by ‘marginalised’ populations, it has sometimes been intimated that such work is conducted mostly by women, often under exploitative low-paid conditions (Hondagneu-Sotelo 2001). This study, however, reveals that although women represented 52 percent of the surveyed population, they were just 45 percent of the informal labour force. The finding, therefore, is that the informal labour force cannot be depicted as over-represented by ‘marginalised’ groups such as women (and the unemployed). It is the case, however, that the informal labour market is segmented in a way that reinforces the gender and socio-economic inequalities witnessed both in the formal labour market and unpaid economy. Not only is the average daily wage received by women from their informal employment 67 percent that received by men but, as will be discussed below, marked differences exist in the types of informal employment conducted by men and women.

Although much contemporary literature distinguishes between informal waged employment and informal self-employment (Williams and Windebank 1998; Neef 2002), this Ukraine survey displays the need for a richer and more textured understanding that recognises a continuum of kinds of informal employment ranging from at one end informal employees engaged in forms of work very close to formal employment in terms of the social relations and motives involved to at the other end, those engaged in informal employment much more akin to unpaid mutual aid. To start to unpack the varieties along this spectrum, three broad categories of informal employment are here distinguished that in practice blur into each other, namely informal waged employment, informal self-employment and paid favours for kin, friends and neighbours. Here, each type is evaluated in turn so as to discuss whether informal employment should be always viewed as impairing economic development and social cohesion.

Some 28 percent of all informal employment identified in this survey involves people working informally for a business. Until now, one particular type of such informal waged employment has been heavily emphasised in the literature, namely that undertaken by marginalised populations working under degrading, low-paid and exploitative ‘sweatshop-like’ conditions as informal employees (e.g., Castree et al.2004; Ross A. 2004), especially in the garment manufacturing sector (e.g., Hapke 2004; Ross R.J.S. 2004). Although such employees cannot be ignored and instances were identified of people being employed in sweatshops (of whom 85 percent were women and 90 percent did not have formal waged work), this is not the dominant kind of informal waged employment in Ukraine.

The most prominent type was where a person works informally for the business in which they are also formally employed, as Neef (2002) also identifies in Romania and Sedlenieks (2003) in Latvia. This occurs where a worker has two wages from their formal employer. The first is the official wage that the employer declares to the government and the second is the informal wage paid in cash. This practice of paying an additional ‘envelope wage’ is very common, with some 30 percent of the formal employees surveyed receiving part of their wage in this manner. There were no marked gender differences in the likelihood of receiving an envelope wage in this study. It was evident, however, that very few were happy with this arrangement since it affected their social security and pension entitlements as well as their ability to get credit and loans. The existence of such a work practice is therefore important. It reveals the inseparability of formal and informal employment displaying not only how they are often inextricably inter-twined, with official salaries and state benefits remaining low precisely because of informal employment providing additional earnings, but also how informal employment is part and parcel of contemporary capitalism as employers seek to reduce costs by adopting informal work arrangements. The existence of ‘envelope wages’ also has significant implications for pension entitlements and social protection. It reveals that the problem of informal employment is not simply that wholly off-the-books workers lack access to pensions and social protection but also that formal employees paid envelope wages are unable to fully access the levels of pension and social protection to which they would otherwise be entitled.

This, however, is not the only form of informal waged employment. Besides those formal employees receiving a portion of their wage informally, others engage in informal employment in businesses where they do not hold a formal job. This takes many forms as Clarke (2002) has identified in Russia. On the one hand, there are those working for wholly informal businesses and on the other hand, and more prevalent, those working for legitimate businesses that pay a portion of their workforce informally. Such work, moreover, was sometimes full-time (and was mostly conducted by men) but more often part-time, temporary or occasional (and undertaken largely by women). Indeed, some 70 percent of these informal employees have a formal job and engage in such work on a temporary, occasional or part-time basis.

The remaining 30 percent working informally for businesses in which they do not hold a formal job are economically inactive or unemployed (66 percent of whom are women). Often they are early retired. Examples of the work they undertake are multifarious but include working as labourers in the construction industry, taxi drivers, serving on market stalls, restaurant work and staffing assembly lines in manufacturing. They tend to be the lowest-paid of all informal waged employees. One early-retired man, for example, regularly worked 24-hour shifts as a security guard in the block of flats in which he lived on a cash-in-hand basis to top up his state pension. The formally employed security guard who unofficially sub-contracted this work to him paid this retired man one-tenth of his salary.

In Ukraine, therefore, informal waged employment is composed of multifarious work practices. On the whole, however, it would be very difficult to depict any of such work as positively contributing to either economic development or social cohesion. As such, when examining informal waged employment, the conventional negative portrayal of such work seems wholly appropriate. Is it the same, however, when analysing other forms of informal employment?

Besides informal waged employment, many engage in informal employment on an own account basis. Indeed, nearly three-quarters (72 percent) was conducted in this manner. Breaking this down in terms of the clients served, some 24 percent (17 percent of all informal employment) is conducted for those previously unknown to, or only vaguely known by, the supplier (of which 68 percent is undertaken by men), whilst the remaining 76 percent (55 percent of all paid informal work) is conducted for people previously known by the supplier (of which 63 percent is conducted by women). Here, the former type of informal self-employment, conducted largely by men, is analysed. The work conducted for closer social relations, and undertaken more by women, is considered further below.

As discussed above, it has been recently intimated that informal employment might be an important seedbed for enterprise creation and development. Here, this is investigated. How many self-employed start-up their business ventures conducting some or all of their transactions informally? The only previous attempt to answer this question is a study in Russia which finds that 26.5 percent of the new self-employed started out doing this work as a second job on an informal basis, displaying how informal employment is an incubator for new self-employed businesses (Guariglia and Kim 2006).

This Ukraine survey, meanwhile, finds that of the 298 individuals identified who have started-up a self-employed enterprise in the last 3 years, nine out of ten had done so without registering their business and seeking a license, and some two-thirds (65 percent) at the time of the survey were still operating on an unregistered and/or unlicensed basis and working wholly in the informal economy. Of these wholly off-the-books enterprises, some two-thirds were operated by women. Of those who had registered their enterprise, meanwhile, 85 percent reported that they were conducting a portion of their trade informally. Some three in four of these registered enterprises conducting a portion of their trade off-the-books were operated by men. In Ukraine, therefore, this survey finds that there is a large ‘hidden enterprise culture’ and that the informal sphere acts as an incubator for the vast majority of enterprise and entrepreneurship, as has previously been intimated might be the case in Ukraine in particular and the post-communist states more generally (Roberts and Fagan 1999; Roberts et al. 2000).

Until now, many have read the existence of this hidden enterprise culture as a negative phenomenon and deleterious to economic development. However, it is not the hidden enterprise culture per se that impairs economic development and growth but rather, the ‘bribe taxes’, administrative corruption and ‘informal taxation’ in public life that pushes such enterprise and entrepreneurs into off-the-books practices (Round and Kosterina 2005; Hanson 2006; Wallace and Latcheva 2006). To attach negative attributes to the hidden enterprise culture and view it as impeding economic progress and development, therefore, is to blame the victim rather than dealing with the cause. To seek to eradicate such informal employment will result in governments stamping out with one hand precisely the entrepreneurship and enterprise that with another hand they are so desperately seeking to nurture. In consequence, it is not so much informal enterprise that is negative and in need of eradication, but rather, the bribes, corruption and informal taxation that are an inherent component of state institutions in societies such as Ukraine.

This, however, is not the only type of own account work identified in Ukraine. A small stream of thought has previously recognised the existence of own account work conducted for reasons other than purely financial gain for closer social relations in western nations (Cornuel and Duriez 1984; Williams and Windebank 2005). This Ukraine study not only reinforces that such work exists in this post-socialist society, but also further advances this small tributary of research by revealing for the first time that such paid favours exist on a continuum ranging from paid favours conducted for closer social relations more for profit-oriented reasons to paid favours for close social relations where the profit-motive is largely absent, with many combinations in between. Even if those engaged in this work often do so primarily in order to help out others, strong economic motives can also exist. Similarly, when customers employ people they know, although the intention is often to help them out financially, there frequently remain strong economic motives behind their decision to pay this person on a cash-in-hand basis; quite simply, to get the job done cheaper. The motives involved when conducting paid favours for closer social relations, therefore, stretch from mostly financial gain at the end nearest to profit-motivated informal self-employment (and these paid favours tend to be conducted more by men) to mostly wishing to help the other person out at the other end (conducted more by women).

Some 55 percent of all informal employment identified in this survey was of this variety. Indeed, 18 percent of all informal employment was for kin living outside the household, 23 percent for friends and 14 percent for neighbours. Indeed, paying for favours given and received is popular in Ukraine. Examining all instances where people provided favours to kin, friends and neighbours, this survey reveals that some 41 percent involved payment. Indeed, some 36 percent of kin exchanges involve payment, 56 percent of exchanges between neighbours and 46 percent of exchanges between friends. This paid informal work, therefore, again provides some support for perspectives that attribute more positive characteristics to the informal economy. Such work represents a key means for delivering community self-help and thus social cohesion and active citizenship in contemporary Ukraine. This monetisation of social relations and reciprocity in contemporary Ukraine, however, should not be confused with the penetration of the profit-motive into realms previously occupied by mutual aid. Monetisation of exchange, as shown above, does not always march hand-in-hand with profit-oriented motivations, as is often assumed when these economies are depicted as in transition to marketization (Williams 2005).

The conventional ‘dual economy’ representation of informal employment, based on a hierarchical reading of the formal/informal employment dichotomy, conceptualises such work as a weak and residual realm composed of low-paid, exploitative work conducted under sweatshop-like conditions by marginalised populations, which has largely negative and deleterious consequences for economic development and social cohesion. Here, this reading has been evaluated critically. Although previous studies have refuted its depiction as a dwindling, marginal and separate realm, until now, there has been little critical evaluation of its representation as a largely negative phenomenon and hindrance to economic development and social cohesion. Drawing upon data collected in Ukraine, therefore, this paper has put under the spotlight not only whether such work is a weak, residual and separate sphere but also whether informal employment has largely negative and deleterious impacts.

To refute the representation of this sphere as weak and residual, this survey has revealed that nearly 40 percent of respondents heavily depend on such work to secure their livelihood. It has also reinforced many previous studies that critique the notion that this is a separate realm. Not only has this study revealed that it is not largely populations excluded from formal employment who engage in this sphere but also, by breaking down informal employment into various types and highlighting for example the system of ‘envelope wages’, it has shown how formal and informal employment are in lived practice often inextricably inter-twined and mutually constituted.

The major contribution of this paper, however, is that it evaluates critically the representation of informal employment as having largely negative and deleterious impacts on economic development and social cohesion. This Ukraine survey provides one of the first attempts to empirically investigate the heterogeneous types of informal employment that exist and whether these different varieties contribute in any positive way to economic and social development. Unpacking the diverse forms of such work so as to understand their varying implications for economic development and social cohesion, this paper has revealed the need for a finer-grained approach towards informal employment.

Examining waged informal employment alone, the negative representation of informal employment as deleterious and damaging appears wholly appropriate and valid. However, when other kinds of informal employment are analysed, such a negative depiction of this work as impairing economic development and social cohesion is not so clear-cut. On the one hand, and examining those engaged in informal self-employment, this study has revealed that informal employment in Ukraine is the key seedbed for enterprise creation and development. Although some caution is urged due to the relatively small sample size, if correct, then it displays that formal businesses in Ukraine represent just the tip of the iceberg and that hidden beneath the surface is a very large ‘enterprise culture’ that is currently prevented from formalizing, in major part, due to the corruption in public life. It is not solely the identification of a large hidden enterprise culture however, that leads to calls for the potentially more positive impacts of informal employment to be more fully considered.

On the other hand, a whole raft of own account work conducted for closer social relations has been here identified, with a third (36 percent) of kin exchanges being monetised and a half of exchanges with neighbours and acquaintances being provided using such paid favours. To pursue the eradication of this principal mechanism for the delivery of community self-help would again result in deterring with one hand precisely the active citizenship that with another hand is being sought in order to promote social cohesion.

In sum, moving beyond informal waged employment and examining the heterogeneous kinds of informal employment, it no longer becomes appropriate to represent such work as having wholly negative impacts on economic development and social cohesion. Just as the formal labour market is composed of multifarious forms of work, some of which have relatively negative impacts on economic development and social cohesion, and some relatively more positive impacts, the same applies to informal employment. What is therefore required is a finer-grained understanding and more nuanced policy approach towards informal employment that recognises its plurality of forms and their varying consequences for economic development and social cohesion. If this paper encourages a move towards such a nuanced understanding and beyond the over-simplified generalities that have too often plagued discussions of this form of work, then it will have fulfilled its objective.

This paper arises out of a project entitled ‘Surviving post-socialism: evaluating the role of the informal sector in Ukraine’, funded by the Economic and Social Research Council (RES000220985). We are indebted to Peter Rodgers for his research assistance. We would also like to express our gratitude to the editor and reviewers for making some very insightful comments on an earlier version of this paper. The normal disclaimers apply.

Colin C. Williams is Professor of Public Policy in the School of Management at the University of Sheffield. His research interests are on work organisation in general, and the informal economy more particularly, and his recent books include Re-thinking the Future of Work (2007, Palgrave), The Hidden Enterprise Culture (2006, Edward Elgar) and Cash-in-Hand Work (2004).

John Round is Lecturer in Human Geography in the School of Geographical and Environmental Sciences, University of Birmingham. His research interests are in economic and social restructuring in post-Soviet societies. [email protected]