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on Informal and Underground Economics |
| By: | Thiele, Rainer; Böhme, Marcus |
| Abstract: | Employing a unique dataset that covers households from six West African capitals, this paper provides new evidence on the demand for informal sector products and services. We first investigate whether demand linkages exist between formal and informal products and distribution channels, and whether there is an overlapping customer base, which would imply that both formal sector wage earners and informal workers buy both formal and informal products using both formal and informal distribution channels. In a second step, we estimate demand elasticities based on Engel curves. We find a strongly overlapping customer base and strong demand-side linkages between the formal and informal sector, with the exception that informal goods are hardly bought through formal distribution channels. The estimated demand elasticities tend to show that rising incomes are associated with a lower propensity to consume informal sector goods and to use informal distribution channels. We therefore conclude that the informal sector in West Africa is likely to be constrained from the demand side. -- |
| Keywords: | Informal sector,formal-informal linkages,Engel curve estimates,West Africa |
| JEL: | D12 O17 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:gdec11:76&r=iue |
| By: | Nicoletta Batini (University of Surrey and IMF); Paul Levine (University of Surrey); Emanuela Lotti (University of Southampton and University of Surrey); Bo Yang (University of Surrey) |
| Abstract: | How does informality in emerging economies affect the conduct of monetary policy? To answer this question we construct a two-sector, formal-informal new Keynesian closed-economy. The informal sector is more labour intensive, is untaxed, has a classical labour market, faces high credit constraints in financing investment and is less visible in terms of observed output. We compare outcomes under welfare-optimal monetary policy, discretion and welfare-optimized interest-rate Taylor rules building the model in stages; first with no frictions in these two markets, then with frictions in only the formal labour market and finally with frictions on both credit markets and the formal labour market. Our main conclusions are first, labour and financial market frictions, the latter assumed to be stronger in the informal sector, cause the time-inconsistency problem to worsen. The importance of commitment therefore in- creases in economies characterized by a large informal sector with the features we have highlighted. Simple implementable optimized rules that respond only to observed aggregate inflation and formal-sector output can be significantly worse in welfare terms than their optimal counterpart, but are still far better than discretion. Simple rules that respond, if possible, to the risk premium in the formal sector result in a significant welfare improvement. |
| Keywords: | Informal economy, emerging economies, labour market, credit market, tax policy, interest rate rules |
| JEL: | J65 E24 E26 E32 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:sur:surrec:0711&r=iue |
| By: | Basu, Arnab K; Chau, Nancy H; Kanbur, Ravi |
| Abstract: | Two stylized representations are often found in the academic and policy literature on informality and formality in developing countries. The first is that the informal (or unregulated) sector is more competitive than the formal (or regulated) sector. The second is that contract enforcement is easier in the formal sector than in the informal sector, precisely because the formal sector comes under the purview of state regulation. The basic contention of this paper is that these two representations are not compatible with each other. We develop a search-theoretic model of contractual dualism in the labor market where the inability to commit to contracts in the informal sector leads to employer market power in equilibrium, while an enforced minimum wage in the formal sector provides employers with a commitment technology but which reduces their market power in equilibrium. The contributions of this paper are three-fold. It (i) provides the micro-underpinnings for endogenous determination of employer market power in the formal and informal sectors due to contractual dualism in the two sectors, (ii) offers a unified and coherent setup whereby a host of salient features of developing country labor markets can be explained together, and (iii) places the original Stiglerian prescription of the optimal (unemployment minimizing) minimum wage in the broader context of labor markets where formal job creation is costly, and where formal employment, informal employment, and unemployment co-exist. |
| Keywords: | Contractual Dualism; Employer Market Power; Informality; Wage Dualism |
| JEL: | J3 J6 O17 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8485&r=iue |
| By: | Kröger, Antje; Meier, Kristina |
| Abstract: | The financial crisis in 2008/2009 had a presumably substantial influence on the everyday social and economic life of many Tajik people, including their behavior in the labor market. In our paper, we aim to study the impact of the economic crisis on individual labor market decisions. This is the first study investigating the impact of the financial crisis in a transition country using a unique panel data set from Tajikistan. We find that the global financial crisis had a strong impact on employment and migration patterns in Tajikistan. Our results show that regular wage employment and self-employment with hired labor decreased while piece-based wage employment and unpaid family work increased during the crisis. Further, households are more likely to send a family member abroad suggesting that the dependency on sending migrants abroad grows in times of economic turmoil. In combination with increased migration risk our results show that the Tajik labor market has largely been affected by the global financial crisis. -- |
| Keywords: | financial crisis,wage employment,migration,Tajikistan |
| JEL: | C23 J24 J16 O10 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:gdec11:50&r=iue |
| By: | Pasquier-Doumer, Laure |
| Abstract: | Abstract Social reproduction is the highest for self-employed as shown by an extensive literature from developed and developing countries. Very few studies however document the reason for this high intergenerational correlation of the self-employed status. The rare studies that have been done concern the US and show that children of self-employed benefit from an advantage when they are themselves self-employed. The purpose of this paper is to test in the African context if the second-generation of self-employed has an advantage related to the first-generation. It aims at highlighting the debate between two visions: the first of informal sector as the less-advantaged sector of a dualistic labour market, and the second as a sector of personal choice and dynamic entrepreneurship. Using 1-2-3 surveys collected in the commercial capitals of seven West African countries in 2001-2002, this paper shows that the second-generation of informal self-employed does not have better outcomes than the first one, except when they choose a familial tradition in the same sector of activity. Thus, in the African context, having a self-employed father does not provide any advantage in terms of profit or sales and is not sufficient for the transmission of a valuable informal human capital. On the other hand, informal entrepreneurs who have chosen a specific enterprise based on familial tradition have a comparative advantage. Their comparative advantage is partly explained by the transmission of enterprise-specific human capital, acquired thanks to experiences in the same type of activity and by the transmission of social capital that guarantees a better clientele and a reputation. -- |
| Keywords: | informal sector,entrepreneurship,intergenerational link |
| JEL: | L26 J24 J62 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:gdec11:64&r=iue |
| By: | Nordman, Christophe J.; Nguyen, Huu Chi; Roubaud, François |
| Abstract: | In spite of its predominant economic weight in developing countries, little is known about informal sector income dynamics vis-à-vis the formal sector. Some works have been done in this field using household surveys, but they only consider some emerging Latin American countries and a few African countries. As a matter of consequence, there is still no way to generalize the (diverging) results to other part of the developing world. Taking advantage of the rich VHLSS dataset in Vietnam, in particular its three waves panel data (2002, 2004, 2006), we assess the magnitude of various formal/informal earnings gaps while addressing heterogeneity issues at three different levels: the worker, the job (wage employment vs. selfemployment) and the earnings distribution.We estimate fixed effects and quantile regressions to control for unobserved individual characteristics. Our results suggest that the informal sector earnings gap highly depends on the workers' job status and on their relative position in the earnings distribution. Penalties may in some cases turn into premiums. By comparing our results with studies in other developing countries, we draw conclusions highlighting the Vietnam's labour market specificity. -- |
| Keywords: | informal employment,earnings gap,transition matrix,quantile regressions,panel data,Vietnam |
| JEL: | J21 J23 J24 J31 O17 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:gdec11:60&r=iue |
| By: | Gabriele Ruiu (University of Cassino); Gaetano Lisi (University of Cassino) |
| Abstract: | Following two important strands of tax compliance literature, this empirical paper develops a cross-section analysis in order to test both the role of tax morale on tax compliance decisions and the main predictions of the slippery slope framework. Using data from the World Value Surveys (WWS), we find empirical support for the slippery slope framework, since trust in and power of tax authorities are negatively and significantly related to a proxy for tax non-compliance behavior given by the size of the hidden economy. In particular, trust in tax authorities exerts a larger effect on shadow economy than the power of tax authorities. Instead, the relation between tax morale and our proxy for tax evasion is not statistically significant. |
| JEL: | A13 H26 K42 C31 |
| Date: | 2011–07–18 |
| URL: | http://d.repec.org/n?u=RePEc:css:wpaper:2011-05&r=iue |
| By: | Grassi, Emanuele; Di Cintio, Marco |
| Abstract: | We propose a modified version of the Shapiro-Stiglitz’s (1984) efficiency wage model by introducing temporary contracts in the standard setup. New theoretical insights emerge on the incentive problem faced by workers and firms. We argue that the existence of temporary contracts broaden the incentive menu available to employers and that the optimal incentive structure can be sustained as an equi- librium outcome only if permanent contracts do not disappear. We also provide an alternative explanation of the wage penalty suffered by temporary workers even if standard models of efficiency wages would predict higher compensations for workers facing a higher job loss risk. |
| Keywords: | Dual labour market; efficiency wages; wage differentials |
| JEL: | J41 J31 J63 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32266&r=iue |
| By: | Sara LaLumia (Williams College) |
| Abstract: | The Earned Income Tax Credit generates large average tax refunds for low-income parents, and these refunds are distributed in a narrow time frame. I rely on this plausibly exogenous source of variation in liquidity to investigate the effect of cash-on-hand on unemployment duration. Among EITC-eligible women, unemployment spells beginning just after tax refund receipt last longer than unemployment spells beginning at other times of year. There is no evidence that tax refund receipt is associated with longer unemployment duration for men, or that the longer durations for women are associated with higher-quality subsequent job matches. |
| Keywords: | Tax evasion, compliance, honesty, dependent exemption |
| JEL: | H26 H24 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2011-09&r=iue |