nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2011‒11‒14
eight papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Informal-Formal Worker Wage Gap in Turkey: Evidence From A Semi-Parametric Approach By Yusuf Soner Baskaya; Timur Hulagu
  2. Labor force status and income disparity: Evidence from Turkey By Akarcay-Gurbuz, Ayca; Ulus, Mustafa
  3. Informality in Mexico By Nicola Brandt
  4. Is informality welfare-enhancing structural transformation ? evidence from Uganda By Fox, Louise; Pimhidzai, Obert
  5. Higher tax morale implies a higher optimal income tax rate By Andras Simonovits
  6. Second-best Random Redistribution. By Stéphane Gauthier; Guy Laroque
  7. The happy artist? An empirical application of the work-preference model By Lasse Steiner; Lucian Schneider
  8. Simplificación del registro laboral en Argentina: Logros obtenidos y problemas pendientes By Lucas Ronconi; Jorge Colina

  1. By: Yusuf Soner Baskaya; Timur Hulagu
    Abstract: Using individual level data from Turkstat Household Labor Force Survey for 2005-2009 period and a variety of parametric and semi-parametric techniques, we test two hypothesis regarding formal and informal labor markets: whether there is a wage gap between formal and informal workers and whether this gap is sensitive to variations in unemployment rates across regions and over time, where the formality of employment is defined with respect to registry status of the individuals to compulsory Social Security System. In line with most studies, the formal workers earn more than informal workers, as suggested by standard wage regressions, conditional on workers' observed individual characteristics. On the other hand, considering the limitations of parametric methods and possibility of misleading results due to the different distributional characteristics of formal and informal workers, we alternatively implement propensity score matching. In contrast with the recent studies for other developing countries showing that the wage gap estimates with propensity score matching is insignificant, we do find large and sizable wage gaps between formal and informal workers in Turkey. While parametric methods give similar estimates for formal-informal wage gap within gender groups, the semi-parametric estimates suggest that the observed formal-informal wage gap is larger among females compared to males. Finally, we show that although the parametric methods, such as wage curve regressions, suggest that wages of informal workers decreases and wages of formal workers do not change with higher unemployment rates, the semi-parametric methods show that these gaps are insensitive to unemployment rate variations across regions or over time. Keywords: Formal/Informal Employment, Wage Gap, Propensity Score Matching, Regional Labor Markets. JEL classification: C14; J30; J42; J60; O17
    Date: 2011–09
  2. By: Akarcay-Gurbuz, Ayca (Galatasaray University Economic Research Center); Ulus, Mustafa (Galatasaray University Economic Research Center)
    Abstract: The nature of the informal sector is a much debated issue. Is working in the informal sector a choice or a constraint? What is the relation between informality and poverty? Theoretically, both are possible, and in this sense, the informal sector bears its own dualism (Fields, 1990, 2005). Consequently, the answer is an empirical issue. In this study, we aim at providing further information about the Turkish labor market using the 2003 and 2008 Household Budget Surveys(HBS) which allows combining income levels with labor force status. We compare income according to five labor force statuses: non-participant, unemployed, worker in the formal sector and worker in the informal sector (agricultural and non-agricultural), and relate findings to poverty. We investigate data to see whether observable heterogeneities in terms of income exist not only between the different statuses, but also within the informal sector.
    Keywords: Labor force status; Income disparity; Turkey
    Date: 2011–11–07
  3. By: Nicola Brandt
    Abstract: Mexico has a relatively large informal sector by OECD standards. While this is in part a symptom of limited development and low productivity, it can also be to some extent its cause, as informal firms stay small to hide their activities and have limited access to productivity-enhancing government services, such a protection of property rights and training. A long-term and broad-based strategy with education at its core is needed for Mexico to reach its productivity potential and fight informality. Lowering the costs of formality, while enhancing its benefits and increasing the cost of non-compliance with labour and tax laws, will be an important part of this strategy. This would include more flexible labour laws, a further reduction in the business regulatory burden and a rethink of the social security package to enhance its attractiveness for low-wage workers and limit costs by making service provision more efficient. This Working Paper related to the 2011 OECD Economic Survey of Mexico. (<P>L'économie informelle au Mexique<BR>Le secteur informel est relativement ample au Mexique par rapport à la situation observée généralement dans les pays de l’OCDE. Cette situation est en partie le symptôme d'un développement limité et d'une faible productivité, mais elle peut aussi dans une certaine mesure en être la cause, étant donné que les entreprises informelles restent petites pour dissimuler leurs activités et ne disposent que d'un accès limité aux services rendus par les administrations publiques qui sont sources de gains de productivité, tels que la protection des droits de propriété et la formation. Une stratégie globale à long terme, centrée sur l'éducation, est nécessaire pour que le Mexique puisse concrétiser son potentiel en matière de productivité et lutter contre l'économie informelle. Réduire les coûts de l'appartenance au secteur formel de l'économie, tout en renforçant les avantages qui en découlent et les coûts du non-respect du droit du travail et de la législation fiscale, constituera une composante importante de cette stratégie. Pour y parvenir, il faudra assouplir le droit du travail, alléger encore les obligations réglementaires des entreprises et repenser le système de sécurité sociale afin de le rendre plus attractif pour les travailleurs faiblement rémunérés et limiter les coûts, en améliorant l'efficience des prestations de services. Ce Document de travail se rapporte à l’Étude économique de l’OCDE du Mexique 2011 (
    Keywords: labour markets, social security, informality, marché du travail, sécurité sociale, économie informelle
    JEL: H55 J23 J32
    Date: 2011–10–17
  4. By: Fox, Louise; Pimhidzai, Obert
    Abstract: While Africa's recent decade of growth and poverty reduction performance has been lauded, concern has been expressed regarding the structure of this growth. In particular, questions have been raised about whether the growth is based on a commodities boom, or whether it is the beginning of a structural transformation that will lift workers from low-productivity jobs into higher-productivity ones. Macro evidence has suggested that the structural transformation has not started. But macro analysis misses the evidence that the process of transformation has started, because this process begins at the household level. Household livelihoods do not move from ones based on subsistence farming and household level economic activities into livelihoods based on individual wage and salary employment away from the household in one leap -- this process takes generations. The intermediate step is the productive informal sector. It is income gains at the household level in this sector that fuel productivity increases, savings, and investment in human capital in this sector. Ensuring that most households are able to diversify their livelihoods into the non-farm sector through productive informality not only increases growth, but also allows the majority of the population to share in the growth process. This paper illustrates this point with the case of Uganda which followed this path and experienced two decades of sustained growth and poverty reduction.
    Keywords: Rural Poverty Reduction,Achieving Shared Growth,Labor Policies,Regional Economic Development,Economic Theory&Research
    Date: 2011–10–01
  5. By: Andras Simonovits (Institute of Economics of the Hungarian Academy of Sciences also Institute of Mathematics, Budapest University of Technology and Economics also Department of Economics, CEU)
    Abstract: We analyze the impact of (exogenous) tax morale on the optimal design of progressive income taxation. In our model, only universal basic income (transfer) is financed from a linear income tax and the financing of public goods is neglected. Each individual supplies labor and (un)declares earning, depending on his labor disutility and tax morale, respectively. Limiting the utilitarianism to the poorer parts of the population (defined by the welfare share), the optimal tax rate is an increasing function of the tax morale and a decreasing function of the welfare share.
    Keywords: tax morale, progressive income tax, undeclared earning, labor supply, income redistribution
    JEL: H21 H26 H41 D58
    Date: 2011–09
  6. By: Stéphane Gauthier (Centre d'Economie de la Sorbonne - Paris School of Economics); Guy Laroque (CREST-INSEE, University College London and Institute for Fiscal Studies)
    Abstract: Random taxation may be optimal when the taxpayers differ in their attitudes towards risk, so that tax randomization enables the government to relax the incentive constraints. The paper provides a necessary and sufficient condition for local random deviations to be welfare improving in a neighborhood of a nonrandom optimum. It also derives conditions satisfied by a global random optimum. A full analytical derivation is given for a two goods two agents economy with isoelastic utilities.
    Keywords: Random taxation, stochastic contract, second best, tax evasion.
    JEL: H21 H23 H26
    Date: 2011–10
  7. By: Lasse Steiner; Lucian Schneider
    Abstract: The artistic labor market is marked by several adversities, such as low wages, above-average unemployment, and constrained underemployment. Nevertheless, it attracts many young people. The number of students exceeds the available jobs by far. A potential explanation for this puzzle is that artistic work might result in exceptionally high job satisfaction, a conjecture that has been mentioned at various times in the literature. We conduct the first direct empirical investigation of artists’ job satisfaction. The analysis is based on panel data from the German Socio-Economic Panel Survey (SOEP). Artists on average are found to be considerably more satisfied with their work than non-artists, a finding that corroborates the conjectures in the literature. Differences in income, working hours, and personality cannot account for the observed difference in job satisfaction. Partially, but not fully, the higher job satisfaction can be attributed to the higher self-employment rate among artists. Suggestive evidence is found that superior “procedural” characteristics of artistic work, such as increased variety and on-the-job learning, contribute to the difference in job satisfaction.
    Keywords: Job satisfaction, artists, work-preference, cultural economics
    JEL: Z10 J24 J28 J31
    Date: 2011–10
  8. By: Lucas Ronconi; Jorge Colina
    Abstract: En este documento se describen las reformas dirigidas a simplificar el registro laboral y el pago de contribuciones sociales implementadas en Argentina en 2005 y 2007. En base al análisis de la normativa y a una encuesta a contadores, resulta que las reformas redujeron la carga administrativa, pero sólo parcialmente. Utilizando microdatos provenientes de las encuestas de hogares realizadas entre 2003 y 2009, y aprovechando las discontinuidades por tamaño de firma que genera la legislación, se estiman coeficientes de diferencias en diferencias del impacto de las reformas simplificadoras sobre el mercado de trabajo. Los resultados indican que las reformas simplificadoras tuvieron un efecto positivo y pequeño sobre la tasa de registro laboral (de aproximadamente 2 puntos porcentuales para el total de los trabajadores y 9 puntos porcentuales para los nuevos contratados), pero no habrían impactado sobre el nivel de empleo. Finalmente, se presentan recomendaciones de política dirigidas a profundizar el proceso de simplificación administrativa con vistas a mejorar su efectividad como mecanismo de mayor registro laboral.
    Keywords: Empleo :: Relaciones laborales, Empleo :: Política de empleo, simplificación, registro, impuestos, mercado de trabajo, informalidad, Argentina
    JEL: J3 J08 O17
    Date: 2011–10

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