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on Informal and Underground Economics |
| By: | Baltagi, Badi H. (Syracuse University); Baskaya, Yusuf Soner (Central Bank of Turkey); Hulagu, Timur (Central Bank of Turkey) |
| Abstract: | This paper presents wage curves for formal and informal workers using a rich individual level data for Turkey over the period 2005-2009. The wage curve is an empirical regularity describing a negative relationship between regional unemployment rates and individuals' real wages. While this relationship has been well documented for a number of countries including Turkey, less attention has focused on how this relationship differs for informal versus formal employment. This is of utmost importance for less developed countries where informal employment plays a significant role in the economy. Using the Turkish Household Labor Force Survey observed over 26 NUTS-2 regions, we find that real hourly wages of informal workers in Turkey are more sensitive to variations in regional unemployment rates than wages of formal workers. This is true for all workers as well as for different gender and age groups. |
| Keywords: | formal/informal employment, wage curve, regional labor markets |
| JEL: | C26 J30 J60 O17 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6836&r=iue |
| By: | Moreno-Monroy, Ana Isabel (University of Groningen); Pieters, Janneke (IZA); Erumban, Abdul Azeez (University of Groningen) |
| Abstract: | This paper analyzes the relationship between formal sector subcontracting and the evolution of the informal sector using nationally representative survey data of Indian manufacturing enterprises for the period 1995-2006. In these years of fast economic growth, subcontracting by formal enterprises gained importance, while the informal sector continued to account for 90 per cent of total manufacturing employment. In order to contrast between a 'modernization' and a 'stagnation' view on formal-informal production linkages, we test whether subcontracting is related to the size of more modern versus more traditional segments of the informal sector. The results show that formal sector subcontracting is positively related to the size of the informal sector only for the most modern informal activities, supporting the view that subcontracting is related to informal sector modernization. We find no support for the claim that the continued expansion of very traditional informal activities is related to increased outsourcing by formal manufacturing enterprises. |
| Keywords: | informal sector, formal sector, subcontracting, manufacturing, India |
| JEL: | O14 O17 L60 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6785&r=iue |
| By: | Philipp Doerrenberg (University of Cologne); Denvil Duncan (Indiana University) |
| Abstract: | We examine the extent to which labor supply elasticities with respect to tax rates depend on access to evasion opportunities. It is observed that some types of workers have the opportunity to hide their income while others do not have such opportunities, e.g. due to being subject to third-party-reporting. We first set up a theoretical model to formally show that labor supply responses depend on access to evasion. The model is then tested in a lab experiment in which all participants undertake a real-effort task over several rounds. Subjects face a tax rate, which varies across rounds and are required to pay taxes on earned income. The treatment group is given the opportunity to underreport income while the control group is not. We find zero labor effort responses to tax rates in the control group and positive statistically significant adjustments in the treatment group; suggesting that both groups indeed react differently to taxes. |
| Keywords: | Tax Evasion, Labor Supply, Taxable Income, Lab Experiment, Taxes |
| JEL: | H2 J2 |
| Date: | 2012–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:cgr:cgsser:03-10&r=iue |
| By: | Marisa Agostini (Department of Management, Università Ca' Foscari Venezia); Giovanni Favero (Department of Management, Università Ca' Foscari Venezia) |
| Abstract: | This paper puts under the magnifying glass the path to failure of Sunbeam Corp. and emphasizes the reasons of its singularity and exceptionality. This corporate case emerges as an outlier from the analysis of the US fraud cases mentioned by WebBRD: the consideration of the time between fraud disclosure and the final bankruptcy reveals the presence of an exceptional sampled case. In fact, the maximum value of this temporal variable is estimated equal to 840 days: it is really far from the range estimated by the survival function for the entire sample and it refers to Sunbeam Corp. Different hypotheses are evaluated in the paper, starting from the consideration of Sunbeam's history peculiarities: fraud duration, scapegoating and creative auditing represent the three main points of analysis. Starting from a micro-analysis of this case that the SEC investigated in depth and this work describes in detail, inputs for future research are then provided about more general problems concerning auditing and accounting fraud. |
| Keywords: | accounting fraud, failure path, creative auditing, historical micro-analysis |
| JEL: | M41 M42 N80 N82 M48 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:vnm:wpdman:25&r=iue |
| By: | Häckner, Jonas (Dept. of Economics, Stockholm University); Herzing, Mathias (Dept. of Economics, Stockholm University) |
| Abstract: | This study attempts to identify firm characteristics that are important in determining whether or not a specific firm has strong incentives for non-compliance with environmental laws. In particular, we analyze how these incentives are related to the size of the cost reductions associated with non-compliance, business cycle conditions, the degree of product differentiation, market structure, and price versus quantity competition. When cost reductions are non-dramatic, in the sense that they do not lead to monopoly, the following rules of thumb are suggested. 1) Inspection should be intensified during booms, 2) firms that face high costs of compliance should be inspected more intensely and 3)firms that are insulated from competition by product differentiation or by lack of competitors should be inspected more intensely. Although our prime focus is environmental inspection, the theoretical findings readily extends to other similar applications such as VAT fraud and violations against import restrictions. They can also have some bearing on the monitoring of financial markets that are subject to regulation. |
| Keywords: | Environmental Inspection; Market Structure; Product Differentiation; Bertrand; Cournot |
| JEL: | K32 L13 Q58 |
| Date: | 2012–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sunrpe:2012_0011&r=iue |
| By: | Ardizzi, Guerino |
| Abstract: | The issue of frauds through payment cards has received a great deal of attention from authorities. A large share of card frauds can be ascribed to the phenomenon of counterfeiting of debit cards, widely used payment instrument in “face-to-face” transactions. With the advent of the Single Euro Payment Area, the European banking community has shared and almost reached the ambitious goal of replacing all the cards (and accepting terminals) with chip compatible ones, which are supposed to be harder to clone than the magnetic stripe card. Using a bi-annual balanced panel data of over one hundred Italian banks, in this paper we estimate for the first time the real impact on card frauds caused by the chip card migration. The results confirm the positive effects of the new technology: the ratio between fraud and ATM-POS transactions (card fraud loss rate) is reduced significantly if the chip card is present. |
| Keywords: | fraud; debit card; payment instrument; security; chip; technology; prevention; EMV; SEPA |
| JEL: | D12 E42 C23 E21 |
| Date: | 2012–07–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:41435&r=iue |
| By: | Gindling, T. H.; Newhouse, David |
| Abstract: | This paper analyzes heterogeneity among the self-employed in 74 developing countries, representing two-thirds of the population of the developing world. After profiling how worker characteristics vary by employment status, it classifies self-employed workers outside agriculture as"successful"or"unsuccessful"entrepreneurs, based on two measures of success: whether the worker is an employer, and whether the worker resides in a non-poor household. Four main findings emerge. First, jobs exhibit a clear pecking order, with household welfare and worker education highest for employers, followed by wage and salaried employees, non-agricultural own-account workers, non-agricultural unpaid family workers, and finally agricultural workers. Second, a substantial minority of own-account workers reside in non-poor households, suggesting that their profits are often a secondary source of household income. Third, as per capita income increases, the structure of employment shifts rapidly, first out of agriculture into unsuccessful non-agricultural self-employment, and then mainly into non-agricultural wage employment. Finally, roughly one-third of the unsuccessful entrepreneurs share similar characteristics with their successful counterparts, suggesting they have the potential to be successful but face constraints to growth. The authors conclude that although interventions such as access to credit can benefit a substantial portion of the self-employed, effectively targeting the minority of self-employed with higher growth potential is important, particularly in low-income contexts. The results also highlight the potential benefits of policies that facilitate shifts in the nature of work, first from agricultural labor into non-agricultural self-employment, and then into wage and salaried jobs. |
| Keywords: | Income,Labor Markets,Skills Development and Labor Force Training,Economic Theory&Research,Rural Poverty Reduction |
| Date: | 2012–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6201&r=iue |
| By: | Gustav Ranis (Economic Growth Center, Yale University) |
| Abstract: | Unskilled labor is the abundant resource in many developing countries, especially at an early stage of their development. Yet, even as at given technologies labor markets have not cleared, neo-classical economists have rejected the notion of an institutional or bargaining wage not based on competitive full employment marginal productivity fundamentals. This paper puts to rest some objections to labor surplus theory based on “red herrings” and then addresses the substantive challenges from the micro-econometric branch of neo-classical economics. We contend that the finding of inelastic supply curves of labor is based on a cross-section static analysis of labor supply within agriculture while the labor surplus model deals with tracing the dynamic reallocation of labor from a traditional to a neo-classical organized sector in a dualistic economy. We present data for a number of labor surplus developing countries showing that institutional wages lag behind agricultural productivity increases as countries move towards a “turning point” when inter-sectoral balanced growth has eliminated unskilled labor and the economy has lost its dual characteristic. |
| Keywords: | development, labor surplus, neo-classical economics, turning point labor markets |
| JEL: | O10 O11 O17 O18 O41 O43 O57 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:egc:wpaper:1016&r=iue |
| By: | Fabio Clementi (University of Macerata); Michele Giammatteo (Bank of Italy) |
| Abstract: | <div style="text-align: justify;">This paper provides an empirical examination of the distribution of labour earnings in Italy. Using four waves of data from the Participation Labour Unemployment Survey, a database of information on the Italian labour market supply, we find the shape of the observed distributions to be positively skewed with a “fat” and long tail on the right. We also address the question of earnings dispersion by applying a “nested” decomposition procedure of the Theil inequality measure, which combines into a unified framework the standard decompositions by population subgroups and income sources. The empirical evidence obtained points to the key role played by the self-employees in shaping labour income inequality, especially at the upper extreme of the earnings distribution, and the emergence of non-standard forms of employment as an important feature of the contemporary workplace.</div> |
| Keywords: | inequality,size distribution,labour income |
| JEL: | D33 D63 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:mcr:wpaper:wpaper00042&r=iue |
| By: | Boeri, Tito (Bocconi University); De Philippis, Marta (London School of Economics); Patacchini, Eleonora (Sapienza University of Rome); Pellizzari, Michele (OECD) |
| Abstract: | We use a new dataset and a novel identification strategy to analyze the effects of residential segregation on the employment of migrants in 8 Italian cities. Our data, which are representative of the population of both legal and illegal migrants, allow us to measure segregation at the very local level (the block) and include measures of house prices, commuting costs and migrants' linguistic ability. We find evidence that migrants who reside in areas with a high concentration of non-Italians are less likely to be employed compared to similar migrants who reside in less segregated areas. In our preferred specification, a 10 percentage points increase in residential segregation reduces the probability of being employed by 7 percentage points or about 8% over the average. Additionally, we also show that this effect emerges only above a critical threshold of 15-20% of migrants over the total local population, below which there is no statistically detectable effect. The negative externality associated with residential segregation arises only for the employment prospects of immigrants, whether legal or illegal. We do not find evidence of either spatial mismatch or skill bias as potential explanations of this effect. Statistical discrimination by native employers is the remaining suspect. |
| Keywords: | migration, residential segregation, hiring networks |
| JEL: | J15 J61 R23 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6834&r=iue |
| By: | Ghani, Ejaz; Kerr, William R.; O'Connell, Stephen D. |
| Abstract: | Policy makers in both developed and developing countries want to make cities more competitive, attract entreprepreneurs, boost economic growth, and promote job creation. The authors examine the spatial location of entrepreneurs in India in manufacturing and services sectors, as well as in the formal and informal sectors, in 630 districts spread across 35 states/union territories. They quantify entrepreneurship as young firms that are less than three years old, and define entry measures through employment in these new establishments. They develop metrics that unite the incumbent industrial structures of districts with the extent to which industries interact through the traditional agglomeration channels. The two most consistent factors that predict overall entrepreneurship for a district are its education and the quality of local physical infrastructure. These patterns are true for manufacturing and services. These relationships are much stronger in India than those found for the United States. The authors also find strong evidence of agglomeration economies in India's manufacturing sector. This influence is through both traditional Marshallian economies like a suitable labor force and proximity to customers and through the Chinitz effect that emphasizes small suppliers. India's footprints in structural transformation, urbanization, and manufacturing sector are still at an early stage. At such an early point and with industrial structures not yet entrenched, local policies and traits can have profound and lasting impacts by shaping where industries plant their roots. |
| Keywords: | Microfinance,Labor Markets,Labor Policies,Private Participation in Infrastructure,Small Scale Enterprise |
| Date: | 2012–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6198&r=iue |
| By: | Holzmann, Robert (University of Malaya) |
| Abstract: | Across the world, pension systems and their reforms are in a constant state of flux driven by shifting objectives, moving reform needs, and a changing enabling environment. The ongoing worldwide financial crisis and the adjustment to an uncertain “new normal” will make future pension systems different from past ones. The objectives of this policy review paper are threefold: (i) to briefly review recent and ongoing key changes that are triggering reforms; (ii) to outline the main reform trends across pension pillars; and (iii) to identify a few areas on which the pension reform community will need to focus to make a difference. The latter includes: creating solutions after the marginalization or, perhaps, demise of Bismarckian systems in countries with high rates of informality; keeping the elderly in the labor market; and addressing the uncertainty of longevity increases in pension schemes. |
| Keywords: | population aging, longevity, financial crisis, multi pillar pension systems, social pension, NDC, MDC |
| JEL: | G23 H55 I3 J21 J26 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6800&r=iue |
| By: | Bierbaum, Mira; Gassmann, Franziska (UNU-MERIT/MGSoG) |
| Abstract: | The Kyrgyz Republic has enjoyed remarkable success in poverty reduction in recent years. Poverty headcounts were halved between 2005 (63.9 per cent) and 2008 (31.3 per cent), before they slightly increased again to 33.7 per cent (2010). However, these aggregate figures mask individual or household trajectories into and out of poverty. Additionally, the question arises as to who has remained poor for an extended duration, i.e. has been chronic poor. Since the panel component of the Kyrgyz Integrated Household Survey suffers from shortcomings, a synthetic panel based on repeated cross-sections is created to investigate poverty persistence and dynamics between 2005 and 2010, following an approach proposed by Dang, Lanjouw, Luoto, and McKenzie (2011). The share of chronic poor ranges between 23.6 per cent-31.5 per cent; that is to say, 74.8 per cent-80.2 per cent of the people classified as poor in 2010 have experienced it for an extended duration. At least two chronic poverty traps are identified: Spatial disadvantages occur in the rural oblasts of Jalal-Abad, Talas, and Naryn that are characterized by adverse topography and low levels of human capital. Moreover, poor work opportunities, particularly employment in informal, low-paid sectors with high income-insecurity, hinder escapes from poverty. These spatial and social traps coincide. Few people fell into poverty between 2005 and 2008, but the picture is more volatile in the years following the fuel and food crisis and the global financial and economic crisis. People employed in informal sectors are more vulnerable to economic downturns, leading to questions regarding the scope, extent and level of existing social safety nets. |
| Keywords: | Poverty, chronic and transitory poverty, poverty reduction synthetic panel, Kyrgyz Republic |
| JEL: | I32 C33 P36 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:unumer:2012064&r=iue |