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In Argentina, it is estimated that about 48% of all work is informal or off-the-books work which is not reported to the government or properly taxed. This hurts the government's tax revenue and can allow violations of labor laws. Are there any strategies that governments can use to move informal work into the formal sphere?

  • "Is it undeclared work? I.e. work where no tax is payed?" yes, here we call it "trabajo en negro" but that doesn't translate. – EmmanuelMess Oct 8 at 13:27
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    Another phrases for this would be: "Under the table" or "off the books" – divibisan Oct 8 at 14:34
  • I would change "can allow violations of labor laws" to "is in violation of labor laws", as social securities (retirement fund, etc) are not being payed. – EmmanuelMess Oct 10 at 2:45
  • I don't think this is an answerable question. Of course all governments want to raise taxes, so all governments want to reduce this "off the books" work. If there were an easy answer, it would already have been done. There isn't an easy answer... – James K Oct 10 at 8:10
  • @JamesK There are usually very well thought out but difficult to understand (and therefore see) solutions. Maybe the government is already doing something, or maybe there is nothing that can actually be really done. I don't know the answer, thus, I don't know if it is nonexistent, or how difficult it is to find. – EmmanuelMess Oct 10 at 14:29
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There are a few ways any government can approach this. First, let's look at the circumstances in Argentina that cause this (this is a good source). A few are excessive regulation, an increase in privitization, and a lack of public confidence in the laws.

One solution is the classic crackdown on informal work by penalizing it, and investing money in uncovering it. This would disincentivize this because there would be consequences to working informally. Optimistically, this would result in a higher public confidence in the laws, but realistically, this would likely just cause this to go further underground, and incentivize more corruption, as the enforcers can be bribed, those who engage in it can be threatened, etc.

The second way the government could do this is by lowering taxes and removing red tape that make it difficult or expensive to formally hire someone. In the article cited, the textile industry keeps its employees informal to dodge regulation and payroll taxes. Lowering these would lower the disincentive to participating in the formal economy.

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    " Lowering these would lower the disincentive to participating in the formal economy." source? – EmmanuelMess Oct 14 at 19:36
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    The tax is a disincentive all by itself, so lowering the tax lowers the disincentive. The source provided talks about this more. – theresawalrus Oct 14 at 19:39
  • What about minimum wage? The source says (4.12 onwards) that there is a correlation between informality and lower pay, can the reason be that the employee has to be paid minimum wage when formally employed? Will formal employment rise if the minimum wage is lowered? – EmmanuelMess Oct 14 at 20:18
  • I'd put minimum wage in the category of removing regulation, so yeah, it might have a positive affect, but I'm not sure that minimum wage specifically is the regulation holding people back. Just loosening one regulation isn't likely to be the solution unless only one thing is causing problems. This is likely a mixture of problems (from the employer's perspective) that formal employment entails. – theresawalrus Oct 14 at 20:43
  • How do you know adding taxes in other places wouldn't fix this? Maybe a penalization to companies with low amount of employees? – EmmanuelMess Oct 14 at 21:15

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