Johannes Koettl

Compared to other regions, Europe and Central Asia is by far the oldest. Moreover, population aging is set to accelerate further over the next decades, as large cohorts turn old. Some countries in the region, such as Russia and Eastern European countries, additionally face a shrinking of their populations. Against this backdrop, this report investigates what stands in the way of societies reaping the full benefits of increased longevity in the region that is, longer lives and potentially prolonged payoffs from human capital and what can help to mitigate the possible negative impacts of a smaller and older workforce. Beginning with a focus on demographic trends, the report puts the rapid decline in fertility and contrasting migration trends in the region in a historical perspective and looks forward at the varying paths that population change may follow in the region. Next, it examines the evidence on the likely impact of demographic change on growth and savings, the labor force, firm and economy-wide innovation, poverty and inequality, and intergenerational solidarity. Finally, the report goes beyond diagnostics and puts an emphasis on what we know regarding successful policy interventions, presenting evidence on what has and has not worked in the past."

What to do about the extent of unregulated “informal” employment and the size of the shadow economy is a dilemma that has been gaining urgency, particularly in Europe’s periphery. The forces that accompany globalization put a premium on mobility and skill-renewal. Rapid population ageing will require that people work longer and be far more productive. To achieve this, social and economic institutions have to be more “pro-employment”, encouraging greater participation in the regulated “formal” sector. And looking ahead, public financial resources will be increasingly scarce, giving urgency to measures that can significantly and sustainably increase tax revenue. This volume is about workers in Europe who earn a living working full or part-time in untaxed markets for goods, services and labor. Their activities are not registered as part of the economy, and because they go unrecorded, they are also unregulated. This makes them illegal although not in essence criminal. Some call this the “underground economy”, “black market” or the “shadow economy”. Informal employment in the shadow economy posses problems individuals and their families, but it is also for firms and society. This volume presents the rationale and steps policy makers in the EU’s newest member countries should take to bring as much economic activity in from the shadow economy as they can. Deriving specific policy guidance and recommendations from rigorous analysis using administrative and unit-level survey data. The authors take full account of specific structural incentives and institutional contexts, and from these draw detailed recommendations. From the conceptual framework and empirical evidence presented in this volume, a set of general policy suggestions are offered to EU members, old and new, as well as those who aspire to join the Union. This policy guidance will resonate with decision makers in upper-middle income and high income countries in other parts of the world. The findings presented in this volume on which these general suggestions are based, are substantiated in 10 background papers available as part of the World Bank’s Policy Research Working Paper series.