Corruption and its Impact on Economic Performance

6. Can corruption be beneficial to the economic performance? Some studies have suggested that corruption may be beneficial for the economy. Positive correlation between corruption and economic growth in Asian countries:

• Bureaucrats do not have enough information or are not competent for taking decisions; corruption can result in a competitive sale.
• Innovative and expensive projects have been created through corruption of capital.

7. Possible solutions:

• Access to information / right to information (Transparency)
• Cooperation between Governments (common database)
• Code of Conduct (education on legal base)
• Reveal Information (protected by law and incentives)

Informal Economy:

1. Definition: Set of economic activities, enterprises, jobs, and workers that are not regulated or protected by the state. It includes social exclusion, missing tax contributions, lower productivity, and distorted competition.

1. Causes:

• Society's readiness to pay taxes: As soon as the benefits of formality do not offset the costs for formal requirements, firms might resort to informality.
• Economic stimulation: For example, if a country's start-up costs are too high, the informal sector may be beneficial for growth, in the sense that it allows small entrepreneurial firms to start a business. In the long term, these enterprises may grow to be successful formal sector firms. Furthermore, the incomes generated in the informal sector would otherwise not have been generated, and can end up being spent in the formal sector and, thus, provide an indirect boost for the formal economy.

1. Measures to abolish the informal economy:

• Incentives: Good laws and rules are useless if there are no efficient institutions pushing for their realization. Formal businesses have to cover various costs that stem from labor regulations, in order for workers to be insured and protected. The idea is to provide both companies and workers with incentives to register and thereby to stick to regulations regarding labor, tax, and registration.
• Sanctions: Sanctioning businesses and workers in the informal economy for not sticking to the legislation might be counterproductive. This approach might not work as it doesn't consider the limited choices of most participants of the informal sector as well as the lack of incentives to exit it in the long run. In the long run, informality seems to cause illegal work to be more accepted leading to its continuation and thus, even after lifting sanctions, illegal workers and their children might remain in black labor markets.

Gender Pay Gap:

1. Definition: The average difference (disparity) between the remuneration for men and women who are working (in the labor market).

1. Reasons:

• Discrimination: Direct discrimination happens when a woman is paid less than a man for the same job. So we could say that women's work is undervalued. Therefore, women are more likely to work in industries with lower average pay. On the other hand, many of the highest paying sectors are disproportionately made up of male employees, such as in the finance or technology areas, which are traditionally dominated by men. So it is obvious that highest paid sectors are male-dominated.
• Motherhood: In a traditional role, women are the ones who leave the workforce temporarily to take care of their children. As a result, women tend to take lower paying jobs because they are more likely to have more flexible timings compared to higher-paying jobs.

1. Solutions:

• Governmental Interference: Government is the one institution that can help solve this problem and close the gender pay gap. Different measures for closing the gap have been discussed. One such measure involves requiring companies to release data on male and female pay ratios to the public. Thus, companies will feel the pressure to create fairer working conditions.
• Promoting Women Entrepreneurship: Policies that reduce barriers which prevent women from starting and developing their own businesses would result in encouraging more women to become entrepreneurs.