In theory, the income measure of GDP and the expenditure measure should be equal, so differences between the two are sometimes used to indicate the size of the informal economy.
National Expenditure and Income Statistics (Additional indirect approaches were covered in the original article, “ Measuring Underground Economy Can Be Done, but It Is Difficult.”) “Once the informal number of workers is identified, informal workers can be attributed the same net compensation as similar workers in the formal economy.” Indirect ApproachesĪs Restrepo-Echavarria noted, indirect approaches “are macroeconomic approaches that try to use an indicator of the informal economy as a proxy for its size or growth.” The following are a couple of these approaches and the issues with each method. Restrepo-Echavarria gave an example of comparing the number of jobs declared by firms with the number of employed people found through household surveys, with the difference representing the informal workforce. Questionnaires and surveys, for instance, rely on respondents being truthful, which may not happen if it requires admitting to not reporting taxes.Īnother direct measure involves calculating the discrepancy between income declared for tax purposes and that measured by selective checks. Direct Approachesĭirect attempts to measure the size of the informal economy typically have circumstances that make them problematic. 1 However, as an article by Economist Paulina Restrepo-Echavarria in The Regional Economist points out, measuring the informal economy is quite difficult. It is estimated to be as much as 36 percent of the gross domestic product (GDP) of developing nations and 13 percent of developed countries’ GDP. The informal economy, also known as the underground economy or the black market, makes up a significant portion of the overall economy.