The scale of informal employment and measurement challenges in Azerbaijan

Abstract

This article analyzes the scale, measurement approaches, and key determinants of informal employment in Azerbaijan. The study shows that informal employment has a systemic character in the national labor market and cannot be regarded merely as a marginal phenomenon. Significant discrepancies exist among different measurement approaches: while official statistics tend to underestimate the level of informality, macroeconomic and indirect estimates indicate that the informal economy accounts for a substantial share of GDP. The analysis identifies the main drivers of informality as strict institutional regulations, high compliance costs, low income levels, the dominance of micro-enterprises, and mistrust in the social protection system. The article emphasizes that informal employment should not be fully equated with tax evasion. From a methodological perspective, it argues that a hybrid measurement approach—combining Labour Force Survey data and administrative records with macroeconomic proxy indicators—is more appropriate for the Azerbaijani context. Overall, the study concludes that better data integration and institutional coordination are essential for more accurate measurement of informality and for designing effective, targeted policy instruments.