From the Second to the Informal Economy*

Endre Sik

Journal of Public Policy, 1992, vol. 12, issue 2, 153-175

Abstract: This paper addresses two related questions: How has the transformation from a centrally planned to a market economy affected the second economy and how has the second economy influenced the transformation? The existence of a second economy compensating for some faults of the planned economy has been a contributing factor in the non-violent transformation of the Hungarian economy. Transformation is making the concepts of a first and second economy obsolete. The informal economy, which is replacing the second economy, differs from the latter in its degree of internalization, and in relying upon fulltime rather than part-time work. It is also increasing in size. The social impact of the informal economy is also different, increasing income inequality and regional disparities, thus replacing the gradations of social differences found in the multi-coloured activities of the second economy with sharper black and white differences. The analysis is illustrated with data from Hungary before and after the transformation.

Date: 1992
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