The shadow economy

Micro-enterprise development programmes.
Another way of encouraging legitimate start-ups is through microenterprise development programmes (MDPs). These provide micro-credit, advice, training and/or support to start-up ventures (Jurik, 2005). Although some MDPs are lending-oriented, others are more training- or advice-oriented. Evaluations of MDPs in the advanced economies have found them to be effective at promoting business growth, creating jobs and increasing clients’ incomes, self-esteem and community involvement. At the same time, they also appear to help smooth the transition from unemployment to self-employment (Balkin, 1989). In Poland, for example, such a micro-enterprise development programme has been introduced targeted at young people.


Builders' Social House, Romania
In Romania, the 'Construction Sector Social Agreement for 2007-2009' (Acordul Social Sectorial Pentru Construct 2007-2009) estimates that approximately one third of the active workforce is undeclared and highlights the importance of tackling this sphere. The Builders' Social House (Casa Sociala a Constructorilor, CSC) is one prominent initiative being used to enable declared work. The CSC was established in 1998 as a privately run welfare organization, to which the representative trade unions and employer organizations in the construction and building materials sector contribute in equal measure.
It provides welfare during the cold season (1 November-31 March) when the construction sector slumbers to people who are in registered formal jobs and, in doing so, provides an incentive for workers to be in declared rather than undeclared work in the construction and building materials sector. CSC members are construction companies and manufacturers of building materials. Entitlement to welfare provision during these winter months is available only to declared employees – that is, those with employment contracts recorded with the local labour inspectorates, and whose social security contributions have been paid. Corporate contributors pay 1.5 per cent of their turnover into the CSC scheme and employees contribute 1 per cent of their gross base salary.
In 2008, CSC had 573 member organizations accounting for 40 per cent of all employment in the construction and building materials industries. During the 2007/08 winter period, 102,387 benefited from this scheme as welfare recipients. This idea is potentially transferable both to other economic sectors where work is largely seasonal, such as agriculture and forestry, and also to other countries.

In 2005 the Polish government initiated the ‘First Business’ programme as a supplement to the ‘First Job’ programme. ‘First Job’ was designed to boost youth employment but ‘First Business’ focused on nurturing entrepreneurship and self-employment among the younger generations. The First Business programme promotes entrepreneurship among young persons (high school graduates younger than 25 and university graduates younger than 27) and helps them create and run their own business or start working as a self-employed person. The programme provides theoretical courses on setting up and running an enterprise, gives practical training in matters related to entrepreneurship, and provides loans and subsidies from the Labour Fund (Fundusz Pracy) and from the Bank of Domestic Economy (Bank Gospodarstwa Krajowego). The main focus of the programme is to offer young entrepreneurs real assistance in setting up and conducting a business and not just to give them financial aid.

This programme in Poland is similar to many other MDPs. As yet, little is known about whether such MDPs are effective in helping fledgling micro-enterprises to start up legitimately. By providing formal loans, for example, MDPs might well help businesses to launch their operations on a formal footing. If such formal loans are also coupled with advice, support and training, the likelihood of such ventures starting off on a formal footing could be further enhanced.