A new IMF Course on dealing with labor market informality

Unregistered employment, partial or non-compliance with reporting and payment obligations as regards income taxes and social contributions have been persistent – and often worsening- phenomena in the economies of Central and Eastern Europe as well in Central Asia. The causes are often related to tax policy, revenue administration, social protections, social insurance and other policies which fail to adequately address the structural issues and behavioral consequences of the tectonic changes induced, more than thirty years ago, by the transition from a command economy to the freedom of enterprise. 

The consequences of informality are numerous, including the uneven playing field across fully compliant firms and others, distortions in the supply and demand side of the labor market, public revenue losses, declining coverage in contributory social insurance schemes, and difficulties in efficiently targeting income-tested welfare schemes. 

The course, presented by the IMF’s Fiscal Affairs Department (FAD), focused on how tax policy, revenue administration, labor market policies, and social insurance programs can influence labor market informality – both in terms of registering labor relations and reporting tax-liable incomes. The course discussed both theoretical and practical considerations. presented country-specific examples of successful policy reforms and introduced participants to analytical tools and methods useful for policy design and impact analyses. The course also presented definitional, statistical, measurement, and fiscal reporting aspects of informality, and offered insights into how difficult policy reforms may be explained to the public in order to generate understanding, acceptance and support.

28 participants from 12 countries and 13 speakers from the IMF (FAD, Statistics Department) as well as external experts worked together for a week. 

The course concluded with a half-day situation game where participants – split into groups representing stakeholders and social partners (trade unions, the business community, etc) – were presented with the very real problems of an imaginary country and were asked to formulate policy recommendation relevant to the course’s topics, negotiate towards compromises and alliances. 

The organizers are thankful to JVI and ICD colleagues whose hard work and experience were indispensable to the success of the course. 

Csaba Feher, Senior Economist, IMF