Background
The term “non-observed economy” refers to economic activities that are not captured by official statistics and typically go unreported. This category often includes informal work, underground trade, and illegal activities.
Historical Context
The notion of a non-observed economy has gained significant attention over the decades as policymakers and researchers strive for a complete understanding of economic activity beyond standard measurements like Gross Domestic Product (GDP). Its importance became particularly noticeable during periods of economic strain where formal sectors failed to capture the entirety of economic interactions occurring within a country.
Definitions and Concepts
The non-observed economy encompasses several subcategories:
- Informal Economy: Economic activities and transactions that are not regulated by formal labor laws and tax systems.
- Underground Economy: Legal but unreported income to avoid taxes and regulations.
- Illegal Economy: Transaction and production activities involving illegal goods and services, like drug trafficking and unlicensed gambling.
- Hidden Economy: The broader term that includes various examples of the non-observed economy.
Major Analytical Frameworks
Classical Economics
Classical economics predominantly ignored the non-observed economy, as it focused mainly on formal markets and the efficient allocation of resources through visible market prices.
Neoclassical Economics
Neoclassical frameworks also tend not deviate towards the non-observed economy, viewing all economic agents as rational entities operating in fully visible and regulated markets.
Keynesian Economics
Keynesian perspectives encourage examining all economic activities, including those in the non-observed economy, mainly when evaluating total employment and informal labor’s effect on aggregate demand.
Marxian Economics
Marxist analysts study the exploitation inherent in the non-observed economy, emphasizing the role of informal labor as a reaction to structured capitalist formations that seek to undercut labor costs.
Institutional Economics
Institutional economists highlight the ways in which formal institutions shape the non-observed economy, including how legal frameworks and societal norms might influence informal and illicit activities.
Behavioral Economics
Behavioral economists might explore the psychological and social factors pushing individuals and businesses to engage in non-observed economic activities, rather than adhering to formal procedures.
Post-Keynesian Economics
Post-Keynesians place significance on understanding the shadow economy in the context of income distribution, inequality, and absorptive capacity of economies.
Austrian Economics
Austrian scholars focus on the entrepreneurial nature and the micro-foundations of the non-observed economy, stressing the extent to which individuals operate outside formal systems to maximize utility.
Development Economics
Development economists study the non-observed economy’s critical role in providing livelihoods in low-income countries, examining its part in poverty alleviation and informal sector productivity.
Monetarism
Monetarists are concerned about the distortions that the non-observed economy can introduce into monetary systems, possibly undermining policy measures directed at the formal economy.
Comparative Analysis
Analysists compare countries by the size of their non-observed economies using methods like the currency demand approach, multiple indicators multiple causes models, and direct approaches such as surveys. Comparative analysis often reveals varying impacts on economic growth, labor markets, and collected revenues.
Case Studies
- *Greece: Notorious for its sizable underground economy heavily impacting tax revenues and social welfare funds.
- *India: High informal economic activity, including street vendors and small family-owned firms not adhering to regulatory frameworks.
- *United States: Sustained growth in the gig economy indicative of a diverse and expanding non-observed economy sector.
Suggested Books for Further Studies
- “The Hidden Wealth Of Nations” by Gabriel Zucman
- “Shadow Economies Around the World: What Do We Really Know?” by Friedrich Schneider
- “Informal Work in Developed Nations” by Enrico Marcelli et al.
Related Terms with Definitions
- Hidden Economy: An economy composed of all unrecorded economic activities.
- Informal Economy: Activities that occur outside formal labor markets and regulatory frameworks.
- Underground Economy: Legal activities performed under the radar to avoid taxation.
- Illegal Economy: Production and trade involving unlawful goods and services.
