ABSTRACT
P. Meon et al., in investigating the relationship between national shadow economies and technical efficiency, found that a failure to make adjustments for the shadow economy led to errors in measured efficiency. The shadow economy is often not considered in productivity research, as its impact on productivity estimation is seen in most cases as being negligible. Within the context of the construction industry Shadow economic activity usually takes the form of short-term and labour intensive ‘cash-in-hand’ work. In the case of the construction industry there has been, a rise in interest in studying the industry’s efficiency and productivity. Consideration should therefore be given to the effect the shadow economy may have on other economic statistics such as productivity. There are a limited number of examples in which construction industry productivity has actually been adjusted to account for the shadow economy. The shadow economy has the potential to distort construction productivity, given the high amounts of unobserved inputs and outputs.
