Job Nomads, Moonlighters, and Arab Pizza Cooks: The "Futures" of Urban Labour Markets?

Holger Floeting and Dietrich Henckel ⁽¹⁾ 

Job Nomads, Moonlighters, and Arab Pizza Cooks: The "Futures" of Urban Labour Markets?

Abstract
1. Mobile Employment
    High-Skilled Mobile Labour
    Low-Skilled Highly Mobile Labour
    Mobile Employment and Local Government Policy
2. Ethnic Economies
    Scope and Structure of Ethnic Economies
    Foreign Business Start-Ups
    Conditions for the Emergence of Ethnic Economies
    Ethnic Economies and Local Government Policy
3. Informal Economy and Grey Economy
    Scope and Structure of the Informal Economy and Grey Economy
    Informal Economy and Local Government Policy
4. Conclusions
    Fostering Awareness and Analysis
    Conclusions for Local Government Policy

Notes
References

 

Abstract:
This article looks at mobile employment, ethnic economies, and the informal economy: three segments of local labour markets that have received little attention from urban studies and in local authority practice, and whose special dynamic makes them extremely important for the city. Despite the differences between them, these areas are sometimes closely interwoven. Even if each may not be particularly big, taken together they constitute an important share of urban labour markets. The article describes the structures and outlines the development of each segment. The aim is to call attention to these neglected aspects of local labour markets and foster greater awareness of developments. Hypotheses on development trends and on local authority options for action are also advanced. The authors' chief recommendation with regard to these segments of the labour market is - subject to the illegality of certain activities - more "enablement" and less "prevention" in policy.

Standard studies of local labour markets are generally based on official employment statistics. Certain segments of urban labour markets which official statistics ignore or neglect are lost to view. This article throws somewhat more light on such aspects. The segments concerned are the following:

• Mobile employment; this covers the submarket for employment that is tied to a city only for a brief period or to a limited extent. This market can be subdivided as follows:
  • employment at the upper end of the skills scale, like international executives or interim managers who generally perform their work in a city for only a short period but make high demands of the city;
  • employment at the lower end of the skills scale, partly linked with illegal migrant labour and undeclared labour or "moonlighting", for example in the building trade and household services.
• Ethnic economies, i.e., the gainful employment of foreigners or Germans of foreign origin that is socio-economically rooted in a specific immigrant milieu.
• The informal ("grey") economy, i.e., employment outside official, declared gainful employment (mostly subject to social insurance contributions), which can also be differentiated into:
  • a subsegment of paid or unpaid work, disregarding unpaid activities like civic engagement, local exchange and trading societies, etc;
  • a subsegment defined in terms of legal or illegal activities.

Although at first glance these segments appear to be very different, they have many common features:

• All three areas have received little attention in urban studies and local authority practice.
• They appear to possess a special dynamic (growth, structural change) and can be very important for a city.
• Despite their differences, the three segments are sometimes closely interlinked, i.e., they overlap considerably (cf. figure 1).
• Even if each may not be particularly big, taken together they constitute an important share of urban labour markets. However, there are no studies that look at employment in the three areas as a whole. Empirical evidence from investigations of individual segments suggest that together the three provide about one quarter of paid work in Germany, distributed very unequally among them.

There are major differences in the material available on each of the segments. Considerable parts of this study are therefore essayistic in nature, seeking to foster greater awareness for issues and to formulate hypotheses.

Before we go into somewhat greater detail on the individual segments (definition, quantitative and qualitative importance, political relevance), their relevance for urban labour markets needs to be roughly assessed. Figure 1 shows how the three segments of urban labour markets interrelate.

Figure 1: Size of selected labour-market segments

Source: own presentation.

The main purpose of this description is heuristic. It is therefore based on approximate submarket dimensions, and aims to show how they interrelate and compare in size with the overall urban labour market. It is ideal-typical, because the size of the single submarkets and the extent of overlap obviously depend on the specific structure of a city. In a "global city" like Frankfurt am Main, for example, the submarket for high-skilled, mobile labour will be much greater than in a city less involved in international commerce and international financial services. In contrast, the ethnic and informal economy segments are likely to be much larger in a city with a high proportion of residents of foreign origin and substantial social problems like Berlin than in a city like Munich.

 

1. Mobile Employment

The category of (highly) mobile labour (2) alone includes a range of subgroups (cf. overview 1):

• workers who frequently change jobs
• workers who frequently change their national location
• workers who have several places of residence, and
• workers who have a permanent place of residence but various places of work.

These various mobile groups can be expected to grow. A number of developments will produce not only more international labour migrants (3) but also greater mobility within the country:

• internationalisation of the economy,
• the spread and differentiation of the national and international division of labour,
• greater specialisation and differentiation of activities,
• increasing instability of occupational careers,
• increasing importance of multinational corporations,
• the emergence of large parts of the world from isolation due to the fall of the Iron Curtain, and,
• serious economic and social disparities between countries.

Some sectors of international migration are not permanent but temporary in nature. First, the integration of economies involves exchanges of executive personnel, corporate cultures, and the diffusion of know-how. Second, many emigrants are interested in earning the resources abroad they need to become economically active in their home countries. To some extent, this highly mobile workforce reflects the growing flexibilisation of labour markets.

As we have seen, mobile employment is the smallest labour market segment, and has two subcategories of very different size: high-skilled and low-skilled.

To treat mobile workers as belonging to urban labour markets is perhaps not quite appropriate since, although demand is generated in urban markets, recruitment is supraregional, usually even international. The "work location" is the city, but the market is in principle the world market. Nonetheless, mobile workers play a role in the development of - at least some - (major) cities, because to some extent the high-skilled have an impact as models, whereas mobile workers at the other end of the skills scale are systematically neglected.

 

High-Skilled Mobile Labour

It is difficult to determine the size of this group if only because it is not clearly demarcated, and - regardless of how it is defined - there are almost no data available for determining its dimensions.(4) We therefore have to make do with rough estimates.

Authors have given many names to this group, especially from an international perspective: "metro business men" (Martinotti 1994), "cosmopolitans" (Moss Kanter 1996), the "transnational business class," "transmigrants" (Leggewie 2001), the "global class" (Dahrendorf 2000. Holders of a Green Card could also be considered as belonging. But there are also categories like interim managers or "job nomads." These names alone show that, explicitly or implicitly, different definitions have been made and different aspects underlined.

• Some stress the limited term of local activity and transience of the relationship with the given city.
• Others emphasise the recruitment catchment area, underlining the transnational nature of the market.

Seen globally, high-skilled migrants constitute less than 10 per cent of the some 80 million labour migrants.(5) As far as the "global class" is concerned, Dahrendorf (2000: 1059) estimates that they could represent one per cent of the population. Even if the already small manager class is included, highly mobile workers, although constituting a significant proportion of the gainfully employed, are nevertheless a small minority. In the United Kingdom 20 per cent of all managers are estimated to be "temporary job nomads". In Germany the number of interim managers is put at 10,000, with a further increase to be expected, especially because temporary work agencies are earning increasing well with this category of labour (Littger 2001).

At any rate, high-skilled mobile workers have two important common features, regardless of how they are defined in detail: people in this segment generally have no social problems, at least no integration problems. They belong to the upper classes, their children often attend international or private schools. Furthermore, they enjoy high social prestige and above-average purchasing power.

Typical activity profiles cover the following spectrum: top executives, interim managers, consultants, international service providers, participants in the internal labour markets of multinational corporations, research and development, artists, diplomats. Typical industries are: the media, financial services, ICT industries/New Economy, research, producer services (legal consulting, advertising, logistics, business consulting, etc.), politics, the arts.

These are labour markets for knowledge-intensive activities or, as Robert Reich (1991) puts it, "symbol analysts." This means that they play an outstanding role wherever knowledge-intensive industries concentrate. Such locations experience circular causation processes of self-reinforcement, i.e., the migration of elites can play a considerable role in the locational concentration of knowledge-intensive firms (Fromhold-Eisebith 2002: 23). Migration of this type is thus highly selective from a geographical point of view.

The small but growing number of highly qualified, mobile workers can affect local labour markets in many ways:

• High-skilled mobile employees serve as role models and examples, and thus as style setters: "In the interstices a 'business class' operates, which, though limited in number, is nevertheless strategically significant, serving as a role model worldwide, a loose conglomerate of managers, consultants, and service providers ? with stronger ties to firms or concepts than to mother country and native tongue, and who devote patriotic sentiments to a nostalgically transfigured childhood place or sports clubs attended by similarly well remunerated nomads" (Leggewie 2001). This image aspect influences local policy.
• Their lifestyle influences complementary labour markets, for they have a high demand for personal services, often delivered by less skilled workers. There are risks of a social cleft. "The global class is surrounded by a swarm of people who depend on them" (Dahrendorf 2000: 1059).
• In the long run, especially as a result of spatial and often ethnic selectivity, this could encourage the formation of transnational networks; through circular reinforcement, it sometimes permanently enhances the economic dynamic.

This segment can also be described as part of the high-velocity labour market, "whose key structural characteristic is the rapid change of job." In this niche labour market, the relationship between organisation and employees is reversed. The most important resource is no longer the organisational capacity for innovation but the information and ideas in the heads of employees" (Rogowski/Schmid 1997: 27). The comparatively small role of high-velocity labour markets in Germany is apparent from the still high level of company service in this country, which has even increased on average over the past decade (Erlinghagen/Knutz 2003).

Finally, the category of high-skilled mobile labour includes a group with multiple places of residence or work places. Such "commuters" have their place of residence in a city on which they make high demands even if they spend little time there.

 

Low-Skilled Highly Mobile Labour

Low-skilled highly mobile workers also belong to a wide range categories, although most have one thing in common: they generally have higher formal qualifications that sedentary low-skilled workers, and are accordingly overqualified for the work they do. The following highly mobile, low-skilled categories of worker, often working only temporarily in a place, can be distinguished:

• Migrant labour performing seasonal work for which no hands are to be found in Germany (example: Polish harvest workers); labour migrants deployed on the basis of Europe-wide tendering (example: British and Portuguese workers on Berlin building sites, au-pairs).
• Illegal immigrants, of whom there are many subgroups, but whose movement is largely labour-market driven (Elwert 2002). The number of illegal migrants in Germany is estimated at about 500,000 (ibid. 10). This group can be differentiated into:
  • immigrants without a residence permit,
  • tourists without a work permit,
  • asylum seekers without a work permit,
  • immigrants with an illegally obtained work permit.

Surprisingly and contrary to popular opinion, illegal immigrants usually come only when they already have a job (ibid.: 12). This section of the grey economy is thus demand-driven. There are often close links with ethnic economy networks.

Typical sectors in which lower-skilled highly mobile workers find employment are: the building and renovation industries, repair services of various types, the catering trade, health care, agriculture, horticulture, household services (household help, nannies, cleaners), prostitution, retailing.

Low-skilled workers can affect urban labour markets in different ways:

• As a rule, illegal immigrants are better qualified - the underclass plays hardly any role - so that illegal immigration is socially highly selective (ibid.: 17), which can lead to displacement effects. Illegal immigrants partly displace resident moonlighters because they have the requisite skills (ibid.).
• Since illegal immigration occurs in response to a demand for labour but labour markets remain formally closed, it is obliged to use illegal networks (ibid.: 20).
• The growth of the market for personal services can contribute to complementary and growth effects.
• Ethnic economies often have close links with the informal economy - not only because, as we have seen, illegal immigrants find refuge in ethnic economy enterprises. Many very small ethnic businesses can operate only with the informal and temporary labour of family members and other relatives.

 

Mobile Employment and Local Government Policy

The different categories of mobile employment differ in their impact on the local labour market and in the attention they attract on the part of local authorities. High-skilled workers improve the image of the city, pay high taxes if resident, and generally enhance economic dynamics, and tend to be unproblematic. But to the extent that infrastructure policy addresses such sections of the population, who are often very mobile, they do play a role in the local policy debate.

Low-skilled workers help to lower prices for goods and especially for services and create additional services; but they can contribute to ghettoization, to greater social and spatial polarisation, and thus to greater integration burdens. But these circumstances are often more or less ignored.

Transnational communities and networks may develop in both segments of internationally highly mobile labour, albeit by different mechanisms, not only boosting the urban economy but also improving future recruitment opportunities through cluster formation, and therefore actuating positive circular causation spirals.

All subsegments of (highly) mobile employment primarily converge on large cities and conurbations. They need the centrality of transport links, the range of services available there, and sometimes the anonymity afforded by the big city. For one such sector, this has been summarised as follows: "Work nomads cannot afford long distances and long commuting, they are particularly dependent on the urban microcosm. ? In the New Economy with its many subfirms and self-employed people, urban spaces supply what was once provided by company headquarters" (Gesterkamp 2001). The city as a locus of maximum transport centrality and diversity regains a more important role as a "time-saving machine."

 

2. Ethnic Economies

For our purposes, ethnic economy means gainful self-employment by foreigners in Germany and dependent employment in businesses run by foreigners which is rooted in a specific immigrant milieu. Specific subsectors of the economy are associated with specific ethnic groups (cf. taz, 02.12.02): the "Italian pizza cook," the "Turkish greengrocer," the "Vietnamese cigarette smuggler," etc. Such stereotypes are typical not only of our day and cultural area.

These examples, caricatural as they are, indicate that ethnic economies are part of both the formal and informal economies. The great importance of family help also shows the close links between formal and informal economies without which many ethnic businesses would not be viable. "Ethnic economies operate for these businesses like revolving doors between the formal and informal labour market segments" (Hillmann 2001: 203). In Germany, this important integration function and fundamental economic prerequisite for small-business ethnic economies comes up against comparatively inflexible labour and company law that make a transition from informal to formal labour difficult. So far little is known about the dynamics and interdependencies between formal and informal labour market segments (ibid.: 205). Presumably a growing section of the foreign population is in informal employment (ibid.: 206).

The connotations of ethnic group and certain sections of the economy may not (or no longer) actually apply. The transfer of attributes is, on the contrary, quite common. The "original Italian pizza cook," for example, is now often an Arab using the ethnic epithet as a resource. The Vietnamese hardly ever run Vietnamese restaurants or snack bars but Chinese ones. Inexpensive kitchen staff do not necessarily belong to the same ethnic group.

To be distinguished from ethnic economies are fields of work exercised by ethnic groups which are determined not by "culturally grounded relations between certain ethnic groups and their alleged occupational preferences" but by "economically driven regroupment phenomena" (Häußermann/Oswald 1997: 24), i.e., occupations in which Germans no longer wish to engage.

Economics and urban studies in Germany have only recently shown an interest in the structure and importance of ethnic economies. Whereas the subject has been treated in North America since the 1950s and has attracted greater attention in the United Kingdom since the early 1980s, in Germany it was still considered "surrealist" in the 1980s (Blaschke 2001: 10).

 

Scope and Structure of Ethnic Economies

Some 800,000 people in Germany are self-employed or in dependent employment in the ethnic economy (Öner 2001: 104). In Berlin alone, one of the "strongholds" of ethnic economies, there are about 14,000 self-employed foreign business people who provide 30,000 jobs, generate an annual turnover estimated at more than ? 2.5 billion, and invest between ? 50 million and ? 75 million each year (Pfützenreuter 2001: 31). Ethnic economies differ from region to region. They are mostly urban phenomena. The same ethnic groups develop different forms of ethnic economy in different areas. In one area they can establish niche economies catering for the majority society, while in other areas they are supplementary economies concentrating on customers of the same ethnic origin. In some metro areas ethnic economies have developed from "locally structured entities into a supraregional form of economy operating beyond the borders of Germany and the European Union" (Blaschke 2001: 9). Berlin, for example, has now become the "Mecca of döner kebab production" in western Europe. Customers throughout Europe are supplied from the German capital. Spatial concentrations of ethnic economies have developed: Turkish businesses, for instance, have clustered in Berlin, Cologne, and Frankfurt/Main (ibid.: 15).

No comprehensive overview of the structure of ethnic economies in Germany is available. Problems of definition and demarcation, the lack of data bases, and the great diversity of ethnic economies obscure the view of overall development. The biggest ethnic economy in Germany - the Turkish economy in Berlin - clearly demonstrates the structures.(6) The economic focus is on catering and food retailing. In addition, household service enterprises (travel bureaus, driving schools, transport undertakings, etc.) and household craft businesses (repairs, tailoring, etc.) have developed. While small-business, family structures predominate, there are clear signs of dynamic development and formalisation in the Turkish ethnic economy (for example, the development of multiple outlet and back-up businesses). Only a small proportion of Turkish business people are from the first immigrant generation or from the group of education migrants, i.e., people who came to Germany to study. Most business people came to this country after 1973 as children or were born in Germany. More than one fifth of business people of Turkish origin have no school-leaving qualifications. The clientele of ethnic Turkish businesses is very mixed, but the proportion of German and Turkish customers varies from sector to sector. The majority of Turkish food retailers and household craft businesses have a predominantly German clientele. Most "high-quality" service enterprises and manufacturing facilities have primarily Turkish customers. The share of businesses with mixed clientele is greatest in other retailing and in household craft trades (Pütz 2003: 27).

 

Foreign Business Start-Ups

Some 300,000 foreigners are self-employed in Germany. In the 1990s alone, the number of foreign self-employed people and entrepreneurs in Germany doubled (Schmid 2000: 1). Most come from Turkey, followed by Italy and Greece (DtA 1999: 1). Nevertheless, the rate of self-employed foreigners is still lower than the rate for self-employed Germans. At the same time, start-ups are much more frequent among foreigners: since the 1980s, the number of self-employed foreigners and the proportion of self-employment among foreigners in Germany have increased much more strongly than German self-employment (Leicht et al. 2001). This development reflects a generation shift and the deteriorating employment situation. First generation immigrants were engaged and have remained in dependent employment. Foreigners starting up businesses are mostly young people from a generation that has grown up in Germany and people who have studied in this country. During the same period, job opportunities for employees - especially in industry - have considerably worsened. Foreigners living in Germany have reacted more readily to this development than Germans by opting for self-employment.

Businesses set up by foreigners differ structurally in some aspects from those established by Germans. For example, founders are on average younger than their German counterparts and they more frequently set up businesses for subsidiary gainful activities. Like new German businesses, most foreigner-founded enterprises are in the service sector. In the building industry, in contrast, the share of foreign start-ups is twice as high as new German businesses, and in the catering trade no less than three times as high (DtA 2002). Unlike Germans, foreign business founders mostly borrow the needed capital from friends and family, not from banks and development institutions. In all, ethnic business founders compensate their lack of access to the resources of the native economy (capital, qualifications, linguistic skills, legal treatment) with ethnic resources (social networks, solidarity, frugality) (Kapphan 1997: 121). However, using ethnic resources can involve susceptibility to blackmail, loyalty demands, and power concentration within ethnic economies (ibid.: 133).

High insolvency rates among foreign start-up businesses, deficient business concepts, insufficient family and private support in combination with the failure to consult public and private start-up advisory services (DtA s.a.) are serious development problems for the ethnic "start-up scene," and so far there are no signs of the situation improving.

 

Conditions for the Emergence of Ethnic Economies

Migration research has so far offered three, mutually non-exclusive explanations for the emergence of ethnic economies: the niche model, the culture model, and the reaction model (Schutkin 2000: 126 ff.).

The businesses of first generation immigrants primarily serve their own ethnic group. When the need for special goods and services in specific immigrant groups is big enough, businesses are established from within the community to cover this demand. The businesses complement the German economy and, to begin with, scarcely compete with it (complimentary economy) (Blaschke/Ersöz 1986: 64). Examples are the export-import shops run by foreigners, catering establishments, food stores, specialised travel bureaus, etc. Some of these businesses cater for German customers. Foreign restaurants, food retailing, or alteration tailoring are example for segments of ethnic economies that have adapted more strongly to the consumption habits of German customers. In certain fields, trades are almost entirely in the hands of foreigners (e.g., alteration tailors or small, single-outlet greengrocers). These businesses are now an important element in local services for all residents in certain neighbourhoods. The niche model primarily explains business start-ups by immigrant generations. In the course of time, businesses established in ethnic niches come to compete with businesses run by Germans, and competitive situations develop within and between ethnic groups. Over and above this, the niche economy evolves to satisfy the changing consumption needs of an immigrant population that has been established in Germany for many years. The "mature" ethnic niche economy includes not only catering establishments and food retailers but also media companies (publishers, printers, television stations), the entertainment industry (discotheques, video rental stores, etc.), banks and insurance companies, estate agents, etc. This explanatory approach is now criticised for taking hardly any account of individual motives (aspirations for higher income, economic independence, higher social status) (Schutkin 2000: 129). The existence of a group of consumers of the same ethnic origin is a necessary but not sufficient condition for successful business start-ups by foreigners (Mars/Ward 1984: 14 ff.). On the other hand, it is not a "mobility trap" that restricts an undertaking to a permanent niche existence; often it is the result of economic calculation: profits that can be earned from business conducted with one's own ethnic group are - at least for the immigrant generation - higher than those to be gained from potential business with German customers (Kapphan 1997: 135).

The culture model explains the emergence of ethnic economies as the being the result of cultural factors (economic system, milieu of origin, etc.) in the immigrants' country of origin which influence the nature of certain preferences for self-employed activity. In fact, a "mentality of self-employment" seems to be more widespread in some European countries than in Germany: the self-employment rate in Greece and Turkey in the late 1990s was over 30 per cent, in Italy 25 per cent, and in Germany about 10 per cent (Schmid 2000: 5). This cultural difference may influence people from these countries who set themselves up in business. In Germany, the self-employment rate in ethnic economies is higher when business founders come from countries with a market economy system and a "commercial mentality" (Blaschke/Ersöz 1987: 55). This explanatory approach, too, is criticised for taking too little note of individual motives. It takes only indirect account of second generation immigrants.

Recent studies often explain the emergence of ethnic economies as a reaction by foreigners to their specific life situation in Germany (reaction model). The essential reasons for self-employment are seen as comparatively worse opportunities for foreigners in the German labour market and greater market opportunities for businesses in certain sectors of the economy. In fact, the foreign population runs higher labour market risks: the proportion of foreigners in employment liable to social insurance contributions has declined since 1990, and the proportion of foreigners among the unemployed has risen. Unemployed foreigners are younger and less skilled than German job seekers (Hillmann 2001: 195). It is also clear that migration usually also involves a "formal dequalification of immigrants" (Kapphan 1997: 126). The reaction model takes individual motives most strongly into account. This approach is usually adopted to explain the emergence of second-generation businesses (Schutkin 2000: 131).

 

Ethnic Economies and Local Government Policy

The treatment of "ethnic economies" has changed in a number of cities in recent years and is continuing to change as local actors become more aware of the their importance for local economic development. Whereas until the second half of the 1990s, ethnic economies had primarily been the domain of immigration commissioners and social welfare authorities ("the senate department then responsible for economics [in Berlin] showed little inclination to offer small ethnic businesses specific aid;" Pützenreuter 2001: 29), they have now become the subject of labour market and employment policy and of local government business promotion. The change of attitude has been due to a new understanding of the integration concept. Until well into the 1990s, integration was always interpreted as labour market integration (Hillmann 2001: 189). With the increasing structural consolidation of unemployment and as the children of immigrants have grown up, the requirements for urban policy action in regard to immigrants has fundamentally changed. "Future urban development including foreign residents is thus not a matter of an ideal-typical concept of a multi-cultural urban society but of the existential question how we can safeguard the cultural and economic resources of the city. The issue is therefore the basis of our future prosperity" (Reiß-Schmidt/Tress 2002: s. pag.). The role of foreigners in cities and in the perception of local authorities is changing, from being "an important target group for cultural and economic integration policy" to "key actors and partners" (ibid.). It was only in the early 1990s that residence restrictions for immigrant groups in some cities, which had been imposed to avoid "bottlenecks and social insufficiencies," were lifted (Hillmann 2001: 191). This was accompanied by a gradual reassessment of dense ethnic group concentrations in immigrant neighbourhoods. From being considered problem areas they have come to be seen as a resource - a view that has, however, yet to achieve general consensus. Such spatial developments continue to be discussed under the heading "ghettoization" and brought into relation with all sorts of - partly justified, partly imagined - dangers (cf. Häußermann/Siebel 2001).

In some cities, special services for promoting ethnic economy start-ups and businesses have been established; for example, the Advice Centre for Business Start-Ups and Business People of Foreign Origin in the business start-up centre "Etage 21" in Hamburg St. Pauli, which receives EU Social Fund support and is an integral element of the St. Pauli district development strategy. 14 per cent of all people setting up in business in Hamburg are now foreigners. The municipality hopes to see "a further increase in the number of the foreign self-employed, who have already increased considerably in numbers in recent years" (Reinken 2002: 1). In Berlin, the immigration commissioner of the state has been promoting advisory services for ethnic start-ups and entrepreneurs since the beginning of the 1990s. Since the second half of the 1990s, the Association for Mutuality has been operating as a model project for the promotion of ethnic business start-ups, supported like the Hamburg project by the EU (Kauert 2001: 36 f.). The Senate Department for Economics wants in future to encourage cooperation between the representatives of different ethnic economies and to initiate such cooperation in collaboration with actors from the ethnic groups. But this has posed problems: for example, few ethnic groups are organised in associations of their own (e.g., Turks), and associations of foreign business people often represent only certain industries (e.g., catering); moreover, foreigners can be unwilling to cooperate with members of other ethnic groups.

Gaps in knowledge at the local level about the structures and functional mechanisms of ethnic economies are a major obstacle. Such knowledge is necessary not least of all to avoid "exaggerated expectations of this labour market as an urban economic buffer or an integration mechanism" (Hillmann 2001: 206).

 

3. Informal Economy and Grey Economy

 

Scope and Structure of the Informal Economy and Grey Economy

As various empirical studies on the grey economy have shown, the informal sector makes an important contribution to the economic performance of Germany, which is in the middle range of OECD countries in this regard (Schneider 2002). At the same time, it is one of the biggest growth sectors of the economy as a whole, its share having grown steadily over the years. According to the latest estimates for Germany, the grey economy equals about 16 per cent of "official" gross domestic product. For 1998 it was estimated to provided work for 22 per cent of the economically active population (between the ages of 20 and 69) (Anheier/Schneider 2000: 45). This high share of working population employed in the grey economy suggests that people who work in this segment engage in multiple gainful activities, i.e. that part-time work is usual. If these estimates are anything like accurate, they show that employment in the grey economy involves an astonishingly large section of the population, that the "grey employment rate" is considerable. This throws light not only on acceptance among demanders but also on broad diffusion among suppliers.

The informal economy covers a wide spectrum of economically relevant activities ranging from moonlighting and the grey economy to self-help activities and local exchange and trading systems (LETS) (ibid.: 41). It must be distinguished from three forms of activity:

• the formal economy,
• housework, hobby and leisure activities, and
• civic engagement.

The reasons for the size and growth of the grey economy are to be sought in high, steadily rising charges, especially nonwage labour costs, in excessive regulation, and in habituation, so that undeclared economic activities, even if they involve fraud and tax evasion, are considered trifling offences. On the other hand, self-help activities are on the increase; they replace dwindling government services, and are explicitly welcomed in the context of civic engagement and the demand to expand civil society.

Studies suggest that the informal economy concentrates in large cities and metropolitan areas, and even that the polarisation of labour markets in international metropolises is partly responsible for and dependent on the informal economy (Sassen 1996). In contrast, certain forms of neighbourhood help - for example, in house building - tend to be typical of rural areas.

Although there is a considerable literature on all variants of the informal economy, on the grey economy, on links with self-help, on civic engagement, and on ethnic economies, it almost ignores the regional level (7) to concentrate on entire national economies. There are practically no studies on the regional and small-scale distribution of activities in the informal economy or on their local implications. Although there are obviously major differences between cities (8) and urban districts as regards integration in the grey economy, no reliable material is available on the subject. Formal and informal economies can be assumed to be linked at the city level, for instance, where companies operate in both the sectors or money earning in the informal sector flows back into the formal economy, but little is known about what role such interdependencies play for the functioning of the urban community. Finally, there is no knowledge available on how local authorities behave as actors towards the grey economy - leaving aside restrictive procedures - what importance they give to it, and how they judge it in the context of local development.

Even if only the illegal parts of the informal economy are taken into account, the repercussions are not clear, not even at the macro-economic level. This ambivalence is even more marked in the local context:

• On the one hand, the grey economy has a displacement effect on the labour market because competitors in the formal labour market unable to match its considerably lower prices lose market shares.
• On the other hand, the grey economy also contributes to market expansion. Studies show that two-thirds of goods and services produced in the grey economy would not have been produced in the official economy (Anheier/Schneider 2000: 47). Most undeclared economic activities also increase private capital formation, for the building industry takes a major share in the grey economy. What is more, the income earned in the grey economy flows back into official circulation, so that the damage is not as great as is often supposed.
• For the public sector, the grey economy brings not only lower revenues - with all this means for public services and public investment - it also increases supervisory and prosecution costs if it grows continuously.
• Empirical studies show that the grey economy flourishes under conditions of high unemployment. "Whoever lives close to the poverty line has difficulty entering the legal economy - either as supplier or demander" (Rada 2002). The informal economy thus plays a not insubstantial role in the social stabilisation of disadvantaged sections of the population and deprived neighbourhoods, even if one should not go as far as Stefan Welzk, who suggests that Berlin's economic future lies in a "symbiosis between a basic legal, highly serious, modern economy and an exuberant, marginal economy vitalised by immigrants" (quoted from Rada 2002: 21).
• Although the grey economy is not a foreigner problem (Cyrus 2001: 212) but also widespread among Germans, too, the illegal employment of foreigners is rife (ibid.: 210). As regards foreigners, too, the grey economy therefore has a great deal to do with integration and the general economic climate. To some extent there are close links with ethnic economies.
• The dividing line between legal and illegal segments of the informal economy is often blurred. Completely legal and desirable elements (for instance, because they compensate for reduced public services) of the Third Sector, as it is sometimes called (self-help, neighbourhood help, LETS, time banks, civic engagement, volunteer work) may include activities intent on avoiding taxes and charges and circumventing regulations.
• Apart from the negative aspects mentioned, the general acceptance of illegal activities can pose a not inconsiderable "cultural problem" in a crisis of loyalty towards the law, in a general increase in disaffection with government.

 

Informal Economy and Local Government Policy

It is clear that the role played by the informal economy in cities is often underestimated, that local government (or other authorities) often help to promote the grey economy (deliberately or through toleration) in their own contract letting practices (according to Cyrus 2001: 226), and that, owing to links between the formal and informal economies, a simply strategy of criminalising or ignoring the issue is not helpful. However, it cannot be said that local government policy has a systematic perception of the importance of the informal economy and its links.

Recent measures to implement the Hartz concept are intended to recover a part of the activities that have shifted into the hidden economy for the formal economy. Even if this succeeds, the general dynamic of the grey economy will not be substantially reduced.

 

4. Conclusions

It is still too early to draw far-reaching conclusions about local government policy for the labour market segments under discussion. For knowledge about these segments of urban labour markets, although varying in extent, remains scant. Particularly little is known about their importance for local government. We therefore see three main tasks in addressing the three very different labour market segments, which this article can present only in outline:

• fostering greater awareness for the importance of the three segments and the consequences of their development,
• systematically analysing the importance, development, and repercussions for the city,
• formulating conclusions and recommendations for local government policy where possible.

 

Fostering Awareness and Analysis

In the first place, local authorities must gain an awareness of the importance of the labour-market subsectors we have described. Highly mobile employment, ethnic economies, and informal economies are growing segments of urban labour markets. However small they may still be, big cities will have to pay greater attention to these structurally important sectors of the labour market because they are often pioneers in new, flexible employment structures.

Local authorities must first roughly ascertain the dimensions of each segment within their jurisdiction. Knowledge is almost entirely lacking about the quantitative and structural dimensions of the segments and their intersections. Such information is essential if policy is to be to the purpose and effectively weighted.

Local authority attitudes towards the various segments at issue differ widely:

• For reasons of image, of labour market dynamics, and because it generates no social problems, the high-skilled, highly mobile segment is judged favourably and given corresponding support.
• Low-skilled, highly mobile workers, in contrast, tend to be ignored or treated defensively.
• Ethnic economies generally enjoy at most benevolent indifference.
• Official policy reproves the grey economy, at least verbally, and to some extent combats it. But in some measure it is also - sometimes accommodatingly - ignored or accepted as inevitable. For instance, some tender prices are obviously possible only if subcontractors operating with undeclared labour are involved (Cyrus 2001: 226).

 

Conclusions for Local Government Policy

Given the inadequate knowledge available on the different labour market segments, their interdependence and repercussions, and the ambivalence of effects and assessment, we can offer no more than very provisional conclusions.

The widely differing ways in which subsections of the labour-market segments under study are treated need to be rethought. Many areas of employment have so far been considered more from a prevention than an enablement perspective. Young foreigners, for example, are seen more as a risk to social stability than as a human resource reserve. The federal and state governments and local authorities have been cooperating for quite some time now on combating undeclared employment, but only recently have efforts been made to promote the - at least partial - integration of the informal sector into the labour market. Mobile employment at the lower end of the skills scale is discussed from the point of view of illegality but hardly at all in terms of its function for parts of the national economy. For the future treatment of the subject "labour-market and employment policy" by local authorities, however, it is necessary to look at both the social risks and the potential of these forms of employment. This requires stronger policy differentiation and closer meshing of educational, integration, and labour-market policy.

The shift in perspective also requires local government policy to achieve a balance between the different target groups. Municipal locational policy addresses the needs of mobile, high-skilled labour while neglecting the interests of the new, endogenous resources of ethnic economies. A balance is needed between local economic, labour-market, and employment measures addressing the lower and upper segments, because the upper segments are needed for image reasons, for reasons of economic dynamics, in order to promote internationalisation, and, possibly, to compensate skills deficiencies. In the long run, neglecting the lower segments generates high social costs through the negative consequences of failed integration, and it is a waste of resources if the potential offered by young people, in particular, is not exploited.

Regardless of the instrumentation of local policy on individual segments - which is beyond our present ambit - taking these additional labour market segments into account clearly modifies local authority scope for action. Policy gains new scope by opening up new potential for growth (ethnic economies, formalising informal aspects, tying the highly mobile to the city). There are, however, constraints, because certain arrangements are not at the disposal of local authorities (e.g., immigration regulations) or influence is limited (no formal access, ethnic economies escape the institutions of the nation state or any form of regulation).

The problem facing local policy is exacerbated by the fact that, while faster local authority intervention is needed (high-velocity labour markets, internationalisation), more time and much patience is required to develop endogenous processes (milieus, ethnic communities, upgrading informal to formal activities). Ultimately, our account must conclude with a plea to gear local labour-market policy to a wide range of very different, additional segments with short and long-term components. This should be done even if local authorities do not necessarily have formal competence, because there is no prospect of the problems simply going away. Fundamentally, coping with the segments of the labour market described requires "enabling" rather than "preventive" policy - except where illegal sectors alone are at issue.

 

Notes

(1) We would like to thank Ronny Kullik and Elena Muth for their help in preparing this article. (back)

(2) This article does not look at the extent to which the highly mobile are singles or families and how the group's social composition affects a city, e.g., in the provision of social services, in the relation of household production of services to the demand for such services on the market. (back)

(3) "For the international diffusion of knowledge and technology, the mobility of highly qualified employees is playing an increasingly important role. The exchange of staff between private and public research facilities, universities and colleges and the research and development divisions of companies is increasing both nationally and internationally. The same is true of exchanges between research and industry. The cross-border mobility of high-skilled labour has grown in recent years in the countries of the EU. International labour mobility is highest in the ICT sector. From a geographical point of view, the exchange of knowledge between the three major economic areas North America, Europe, and East Asia will become more and more important." (Federal Ministry of the Interior 2001) (back)

(4) "On the number of transnational migrants in the high-skilled market segment little information and hardly any empirical studies are available for Germany." (Hillmann 2001: 194) (back)

(5) "According UN estimates for the early 1990s, the number of high-skilled emigrants/immigrants worldwide was 7 million, which is a minority of the total 80 million labour migrants." (Fromhold-Eisebith 2002: 27) (back)

(6) A similar typology is available for the Italian ethnic economy in Berlin (Pichler 2002: 257-274). (back)

(7) One exception is the study by Schneider (2002), which attempts to assess the grey economy in Berlin and Brandenburg, especially in the building industry. (back)

(8) The study by Schneider on Berlin and Brandenburg provides some indications (2002). According to his estimates, the share of the hidden economy in official GDP in Germany is 16 per cent, but for Berlin just under 21 per cent. However, Berlin also has the reputation of being the "moonlighting capital" (taz, 26.04.02: 21). The anonymity of the big city may also be seen as a favourable condition for the grey economy. (back)

 

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