The hidden dangers of the informal economy

The hidden dangers of the informal economy – McKinsey Quarterly – Economic Studies – Productivity & Performance: “Research by the McKinsey Global Institute (MGI) has found these beliefs to be untrue. Rather than getting smaller, the informal economy is growing in many countries. Over the past ten years, MGI has studied informality within a variety of industries in a range of different countries, including Brazil, India, Poland, Portugal, Russia, and Turkey. MGI found that the substantial cost advantage that informal companies gain by avoiding taxes and regulations more than offsets their low productivity and small scale. Competition is therefore distorted because inefficient informal players stay in business and prevent more productive, formal companies from gaining market share. Any short-term employment benefits of informality are thus greatly outweighed by its long-term negative impact on economic growth and job creation.”