nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2013‒02‒03
twelve papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Corruption, Shadow Economy and Income Inequality: Evidence from Asia By Kar, Saibal; Saha, Shrabani
  2. Who Suffers the Penalty? A Panel Data Analysis of Earnings Gaps in Vietnam By Nguyen, Huu Chi; Nordman, Christophe Jalil; Roubaud, François
  3. A Model of Comparative Advantage with Matching in the Urban Tanzanian Labour Market By Andrew Kerr
  4. What Happens When Canadian Aggregate Rates of Employment and Unemployment Change? A Note on the Differences in Response Patterns Across Age and Sex Groups By Frank T. Denton; Byron G. Spencer
  5. International Comparisons of Household Saving Rates and Hidden Income By Herbert Walther; Alfred Stiassny
  6. Interaction of Formal and Informal Financial Markets in Quasi-Emerging Market Economies By Harold Ngalawa; Nicola Viegi
  7. Beneficial Ownership and Control: A Comparative Study - Disclosure, Information and Enforcement By Erik P.M. Vermeulen
  8. On the Interdependence of Illegal and Legal Immigration By Moritz Bonn
  9. The Impacts of Social Networks on Immigrants’ Employment Prospects: The Spanish Case 1997-2007 By Luciana Méndez Errico
  10. Cross-Border Spillover: U.S. Gun Laws and Violence in Mexico By Dube, Arindrajit; Dube, Oeindrila; García-Ponce, Omar
  11. Recovering the Stolen Sweets of Fraud and Corruption By Jeffrey Simser
  12. Segmentation du marché du travail - le cas luxembourgeois By LEDUC Kristell; GENEVOIS Anne-Sophie

  1. By: Kar, Saibal (Centre for Studies in Social Sciences, Calcutta); Saha, Shrabani (Edith Cowan University)
    Abstract: A number of recent studies for Latin America show that as the size of the informal economy grows, corruption is less harmful to inequality. We investigate if this relationship is equally compelling for developing countries in Asia where corruption, inequality and shadow economies are considerably large. We use Panel Least Square and Fixed Effects Models for Asia to find that both 'Corruption Perception Index' and 'ICRG' index are sensitive to a number of important macroeconomic variables. We find that in the absence of the shadow economy, corruption increases inequality. However, with larger shadow economies in South Asia, the income inequality tends to fall.
    Keywords: corruption, inequality, shadow economy, panel data, South Asia
    JEL: J48 K42 O17 O53
    Date: 2012–12
  2. By: Nguyen, Huu Chi (IRD, DIAL, Paris); Nordman, Christophe Jalil (IRD, DIAL, Paris); Roubaud, François (IRD, DIAL, Paris)
    Abstract: In spite of its predominant economic weight in developing countries, little is known about the informal sector earnings structure compared to that of the formal sector. Taking advantage of the VHLSS dataset in Vietnam, in particular its three wave panel data (2002, 2004, 2006), we assess the magnitude of various formal-informal earnings gaps while addressing heterogeneity at three different levels: the worker, the job (wage employment vs. self-employment) 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, panel data, Vietnam
    JEL: J21 J23 J24 J31 O17
    Date: 2013–01
  3. By: Andrew Kerr
    Abstract: In this paper I build an equilibrium search model of the urban Tanzanian labour market that explains the choice between wage and self-employment and the variation in earnings across and within these sectors.  Self-employment is very common in urban Tanzania and survey data show both that there are large overlaps in the distribution of earnings in private wage employment and self-employment and that there is little movement between wage and self-employment.  This suggests that self-employment represents a worthwhile alternative to wage employment in small, low-productivity firms for the majority of urban Tanzanians, in contrast to the traditional view of African labour markets in which wage employment in small firms and self-employment are lumped together as the informal sector.
    Date: 2012–12–03
  4. By: Frank T. Denton; Byron G. Spencer
    Abstract: The paper considers age-sex patterns of fluctuation of employment, unemployment, labour force participation, hours worked per employee, and hours worked per capita. The patterns are extracted (by regression) from annual data for the period 1976-2011 and expressed in the form of group-to-aggregate elasticities. An additive relationship among the elasticities is noted and used to decompose the variation of per capita hours worked into source contributions. On that basis, participation and employee hours are found to be significant contributors generally over the working age range, but especially among young workers. The results suggest a considerable amount of "hidden" unemployment during cyclical downturns.
    Keywords: Cyclical labour force behaviour, age-sex employment and unemployment rates, hidden unemployment
    JEL: J20 J21
    Date: 2012–12
  5. By: Herbert Walther (Department of Economics, Vienna University of Economic and Business); Alfred Stiassny (Department of Economics, Vienna University of Economic and Business)
    Abstract: In this paper, we argue that shadow activities and different levels of marketization of household production systematically distort international comparisons of aggregate gross household saving rates (HSRs): Higher shares of hidden income increase observed HSRs. Panel data for 18 (24) OECD-countries covering a period of a decade show that gross HSRs are positively related to the degree of corruption (used as a proxy for the propensity to shift economic activities into the shadow) and to the share of income from property and self employment. At the same time, gross HSRs are negatively related to the female employment rate, the ratio of indirect taxes to direct taxes, and to the tax wedge. One plausible story behind these phenomena might be that unobserved consumption and wages in the shadow labor market induce an upward bias in observed HSRs and profit shares, while the price level effects of a higher share of indirect taxes and a ‘welfare state’ effect lower observed HSRs.
    Keywords: National Accounts, Saving Rate, Hidden Income, Shadow Economy, Corruption, Dynamic Panels
    JEL: E01 E21 O17
    Date: 2013–01
  6. By: Harold Ngalawa (School of Economics and Finance, University of KwaZulu-Natal); Nicola Viegi (Department of Economics, University of Pretoria)
    Abstract: The primary objective of this paper is to investigate the interaction of formal and informal financial markets and their impact on economic activity in quasi-emerging market economies. Using a four-sector dynamic stochastic general equilibrium model with asymmetric information in the formal financial sector, we come up with three fundamental findings. First, we demonstrate that formal and informal financial sector loans are complementary in the aggregate, suggesting that an increase in the use of formal financial sector credit creates additional productive capacity that requires more informal financial sector credit to maintain equilibrium. Second, it is shown that interest rates in the formal and informal financial sectors do not always change together in the same direction. We demonstrate that in some instances, interest rates in the two sectors change in diametrically opposed directions with the implication that the informal financial sector may frustrate monetary policy, the extent of which depends on the size of the informal financial sector. Thus, the larger the size of the informal financial sector the lower the likely impact of monetary policy on economic activity. Third, the model shows that the risk factor (probability of success) for both high and low risk borrowers plays an important role in determining the magnitude by which macroeconomic indicators respond to shocks.
    Keywords: Informal financial sector, formal financial sector, monetary policy, general equilibrium
    JEL: E44 E47 E52 E58
    Date: 2013–01
  7. By: Erik P.M. Vermeulen
    Abstract: Investor confidence in financial markets depends in large part on the existence of an accurate disclosure regime that provides transparency in the beneficial ownership and control structures of publicly listed companies. This is particularly true for corporate governance systems that are characterised by concentrated ownership. On the one hand, large investors with significant voting and cash-flow rights may encourage long-term growth and firm performance. On the other hand, however, controlling beneficial owners with large voting blocks may have incentives to divert corporate assets and opportunities for personal gain at the expense of minority investors.<P>The paper focuses particularly on the misuse of corporate vehicles, which arguably poses a major challenge to good corporate governance. Stakeholder rights (e.g. employees and creditors) cannot be properly exercised if ultimate decision- be identified. The accountability of the board may also be seriously endangered if stakeholders and the general public are unaware of decision-making and ultimate control structures. Finally, regulators and supervisory agencies have a strong interest in knowing beneficial owners – in order to determine the origin of investment flows, to prevent money laundering and tax evasion and to settle issues of corporate accountability.
    Keywords: shareholders, corporate governance, beneficial ownership, control-enhancing mechanisms, disclosure, inside blockholders, money laundering, outside blockholders, private enforcement, public enforcement
    JEL: G30 G32 K22 K42
    Date: 2013–01–18
  8. By: Moritz Bonn (University of Siegen)
    Abstract: 15 pages
    Keywords: Illegal Immigration, Fiscal Contribution, Immigration Policy
    JEL: F22 H24 K4
    Date: 2013
  9. By: Luciana Méndez Errico (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona)
    Abstract: This paper studies the extent to which social networks influence the employment stability and wages of immigrants in Spain. By doing so, I consider an aspect that has not been previously addressed in the empirical literature, namely the connection between immigrants’ social networks and labor market outcomes in Spain. For this purpose, I use micro-data from the National Immigrant Survey carried out in 2007. The analysis is conducted in two stages. First, the impact of social networks on the probability of keeping the first job obtained in Spain is studied through a multinomial logit regression. Second, quantile regressions are used to estimate a wage equation. The empirical results suggest that once the endogeneity problem has been accounted for, immigrants’ social networks influence their labor market outcomes. On arrival, immigrants experience a mismatch in the labor market. In addition, different effects of social networks on wages by gender and wage distribution are found. While contacts on arrival and informal job access mechanisms positively influence women’s wages, a wage penalty is observed for men.
    Keywords: Immigration, Labor market, Social Networks, Quantile regression, Semi-parametric estimations
    JEL: J15 J31 J61 C15
    Date: 2013–01
  10. By: Dube, Arindrajit (University of Massachusetts Amherst); Dube, Oeindrila (New York University); García-Ponce, Omar (New York University)
    Abstract: To what extent, and under what conditions, does access to arms fuel violent crime? To answer this question, we exploit a unique natural experiment: the 2004 expiration of the U.S. Federal Assault Weapons Ban exerted a spillover on gun supply in Mexican municipios near Texas, Arizona and New Mexico, but not near California, which retained a pre-existing state-level ban. We find first that Mexican municipios located closer to the non-California border states experienced differential increases in homicides, gun-related homicides and crime gun seizures in the post-2004 period. Second, the magnitude of this effect is contingent on political factors related to Mexico's democratic transition. Killings increased substantially more in municipios where local elections had become more competitive prior to 2004, with the largest differentials emerging in high narco-trafficking areas. Our findings are consistent with the notion that political competition undermined informal agreements between drug cartels and entrenched local governments, highlighting the role of political instability in mediating the gun-crime relationship.
    Keywords: gun control, violence, informal employment, cross-border spillover, cartels
    JEL: K14 D72 D73
    Date: 2012–12
  11. By: Jeffrey Simser (Toronto, Canada)
    Abstract: Fraud and corruption are profit motivated crimes. This paper examines how proceeds are generated from these crimes, where those proceeds can be hidden, how those proceeds can be found and most importantly, recovered.
    Keywords: Fraud, corruption, money laundering, asset recovery, asset forfeiture
    Date: 2013–01
  12. By: LEDUC Kristell; GENEVOIS Anne-Sophie
    Abstract: Les théories de la segmentation remettent en cause l?unicité et l'homogénéité du marché du travail, en stipulant au contraire qu?il existe plusieurs segments cloisonnés, les uns étant rémunérateurs et offrant une stabilité et une sécurisation des carrières professionnelles (marché primaire) et les autres étant, au contraire, synonymes de faibles salaires, d'instabilité professionnelle et de précarité financière (marché secondaire). Si de nombreux travaux et études ont cherché à mettre en évidence l'existence d'une segmentation du marché du travail, aucune recherche n'a été menée sur cette question au Luxembourg. Cette publication a donc pour objectif de chercher à savoir si le marché du travail luxembourgeois est un marché segmenté et, le cas échéant, de qualifier et de quantifier les différents segments. Dans cette étude, l?examen de la revue de littérature montre qu?il existe des conceptions du phénomène différentes et que la segmentation peut se révéler à trois niveaux différents : le niveau entreprise, le niveau emploi et le niveau salarié. En testant empiriquement l?hypothèse de la segmentation au Luxembourg à partir du niveau d?analyse des emplois, les résultats de nos analyses mettent en lumière 8 groupes d?emplois sur le marché du travail. Ces 8 groupes peuvent néanmoins être regroupés en 3 catégories. La 1ère et la 2ème catégorie renvoient aux marchés primaire et secondaire énoncés par la théorie duale de la segmentation alors que la 3e catégorie, que l?on qualifie de marché intermédiaire, regroupe des emplois présentant des caractéristiques aussi bien du marché primaire que secondaire.
    Keywords: marché du travail; segmentation
    JEL: J42
    Date: 2012–10

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