nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2013‒03‒16
nine papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Unemployment Compensation and the Allocation of Labor in Developing Countries By Charlot, Olivier; Malherbet, Franck; Ulus, Mustafa
  2. SME registration evidence from a randomized controlled trial in Bangladesh By De Giorgi, Giacomo; Rahman, Aminur
  3. La informalidad laboral en el sector formal. Un análisis preliminar By Mónica Jiménez
  4. Shadow economies at times of banking crises: empirics and theory By Emilio Colombo; Luisanna Onnis; Patrizio Tirelli
  5. How do financial reforms affect inequality through financial sector competition? Evidence from Africa By Asongu , Simplice A
  6. How Much Has Private Credit Lending Reacted to Monetary Policy in China? The Case of Wenzhou By Duo Qin; Zhong Xu; Xue-Chun Zhang
  7. Minimum Wages and the Creation of Illegal Migration By Epstein, Gil S.; Heizler (Cohen), Odelia
  8. Fifteen years of inequality in Latin America : how have labor markets helped ? By Azevedo, Joao Pedro; Davalos, Maria Eugenia; Diaz-Bonilla, Carolina; Atuesta, Bernardo; Castaneda, Raul Andres
  9. Economic and cultural factors and illegal copying in the university textbook market By Antonello E. Scorcu; Laura Vici

  1. By: Charlot, Olivier (University of Cergy-Pontoise); Malherbet, Franck (University of Rouen); Ulus, Mustafa (Galatasaray University)
    Abstract: This paper studies the effects of the introduction of unemployment compensation (UC) in countries characterized by pervasive informality. We provide a simple framework to analyze the impact of UC on the allocation of workers between formal and informal activities, as well as the allocation of workers between sectors featuring different incentives to go informal. We show that a reasonable amount of UC may reduce informality, while larger amounts of UC induce large disincentives to go formal because of the level of taxation involved. We also argue that the financing of UC should be part and parcel of a well- conceived UC system. We show that UC finance based on payroll taxes is likely to entail an excess level of informality resulting from cross-subsidies between heterogenous sectors. The introduction of a simple layoff tax meant to finance the UC system is then shown to reduce informality, hence highlighting how a well-designed financing scheme may be used as a supplementary instrument to curb informality.
    Keywords: informality, labor market imperfections, unemployment compensation
    JEL: E24 E26 J60 L16 O1
    Date: 2013–02
  2. By: De Giorgi, Giacomo; Rahman, Aminur
    Abstract: Informality is pervasive in developing countries. In Bangladesh, the majority of firms are informal and as such they might not have access to prime markets, while lowering the tax base. The authors implemented an information campaign on registration, including both the step-by-step procedures and the potential benefits from registration. They find that the treatment made firms more aware of the procedures, but had no impact on actual registration. The results point toward potentially low benefits and high indirect costs of registration as the main barriers to formality (e.g. access to markets, taxation, labor and product regulations).
    Keywords: E-Business,Economic Theory&Research,Microfinance,Access to Finance,Technology Industry
    Date: 2013–03–01
  3. By: Mónica Jiménez (CONICET-IELDE/UNSa)
    Abstract: The complexity of the phenomenon of informality is manifested, among other things, the existence of some companies that traditionally included as part of the formal sector of the economy but actually partially operate informally. The main objective of this study is to examine, from a descriptive analysis, the key features of informality in the formal sector and the quality of the jobs in that sector. To this end, we examine the most important trends and patterns of the main variables related to labor informality, to describe the functioning of the labor market in the Argentinian formal sector from a long-term vision.
    Date: 2013–03
  4. By: Emilio Colombo; Luisanna Onnis; Patrizio Tirelli
    Abstract: This paper investigates the response of the shadow economy to banking crises. Our empirical analysis, based on a large sample of countries, suggests that the informal sector is a powerful buffer, which expands at times of banking crises and absorbs a large proportion of the fall in official output. To rationalise our evidence, we build a dynamic stochastic general equilibrium model which accounts for financial frictions and nominal rigidities. In line with the empirical literature on the shadow economy, we assume that in the informal sector access to external finance is limited, and the production technology is relatively more labour intensive. Following a banking shock in the official sector, the model predicts a large negative transmission to the unofficial economy: about 60% of the official sector contraction is absorbed by the growth of the shadow economy.
    Keywords: Financial crises, shadow economy, DSGE models
    JEL: E26 E32 E44
    Date: 2013–02
  5. By: Asongu , Simplice A
    Abstract: In the first empirical study on how financial reforms have been instrumental in mitigating inequality through financial sector competition, we contribute at the same time to the macroeconomic literature on measuring financial development and respond to the growing field of economic development by means of informal sector promotion. Hitherto, unexplored financial sector concepts of formalization, semi-formalization and informalization are introduced. Four main findings are established: (1) while formal financial development decreases inequality, financial sector formalization increases it; (2) whereas semi-formal financial development increases inequality, the effect of financial semi-formalization is unclear; (3) both informal financial development and financial informalization have an income equalizing effect and; (4) non-formal financial development is pro-poor. Policy implications are discussed.
    Keywords: Financial Development; Shadow Economy; Poverty; Inequality; Africa
    JEL: E00 G20 I30 O17 O55
    Date: 2013–01–01
  6. By: Duo Qin (Department of Economics, SOAS, University of London, UK); Zhong Xu (People's Bank of China); Xue-Chun Zhang (People's Bank of China)
    Abstract: This study investigates empirically what the major factors are which have driven Wenzhou’s informal credit market and how much that market is responsive to monetary policies and the formal banking conditions nationwide. The main findings are: (i) the informal credit lending rates are highly receptive to monetary policies; (ii) the market is dominantly demand driven; (iii) the informal lending is substitutive to bank savings in the short run but complementary to banking lending in the long run; and (iv) the market is complementary to excessive investments in the local real estate market.
    Keywords: informal credit market, monetary policy
    JEL: G19 E52 O16
    Date: 2013–02
  7. By: Epstein, Gil S. (Bar-Ilan University); Heizler (Cohen), Odelia (Academic College of Tel-Aviv Yaffo)
    Abstract: In this paper, we explore employers' decisions regarding the employment of legal and illegal immigrants in the presence of endogenous adjustment cost, minimum wages and an enforcement budget. We show that increasing the employment of legal foreign workers will increase the number of illegal immigrants which will replace the employment of the local population and thus creating illegal migration.
    Keywords: illegal immigration, foreign worker, minimum wages
    JEL: J3 K42
    Date: 2013–02
  8. By: Azevedo, Joao Pedro; Davalos, Maria Eugenia; Diaz-Bonilla, Carolina; Atuesta, Bernardo; Castaneda, Raul Andres
    Abstract: Household income inequality has declined in Latin America in the past decades, contributing significantly to poverty reduction in the region. Although available evidence shows that changes in the labor income are among the main factors behind these inequality trends, few studies have analyzed more closely the labor market dynamics that have led to a decline in total income inequality in some countries, but also to an increase in others. Using household survey data for a sample of 15 countries in Latin America from 1995 to 2010, this paper uses an extension of the Juhn-Murphy-Pierce methodology to decompose changes in labor income inequality (hourly wages) into a quantity effect (capturing changes in the distribution of workers'skills), price effect (reflecting returns to skills), and unobservables effect (other components, within skill groups, affecting labor income). The results show that falling returns to skills for both education and experience is, on average, driving the decline in labor income inequality in Latin America. The quantity effect, in turn, has contributed little to inequality reduction, mostly attributable to a larger dispersion in years of experience, possibly linked to the region's demographic transition and to significant increases in female labor force participation. Additional findings show that wage inequality, still high in the region, is coupled with inequality in terms of hours worked. The paper complements the existing literature by presenting separate results for males and females, as well as formal and informal sector workers as an attempt to control for secular shifts in these characteristics.
    Keywords: Poverty Impact Evaluation,Inequality,Services&Transfers to Poor,Labor Policies,Labor Markets
    Date: 2013–03–01
  9. By: Antonello E. Scorcu (Department of Economics, University of Bologna, Italy); Laura Vici (Department of Economics, University of Bologna, Italy))
    Abstract: The role of economic factors, such as family income, the price of illegal reproductions of books, the enforcement rules and the expected penalties are considered the main determinants of the possible infringements of the copyright law. However, the comparison between individual economic gains and losses offers only a partial explanation, as also cultural individual habits and peer effects exert important influences. Using a unique dataset based on a survey conducted at the University of Bologna, Italy, this paper analyses empirically the relevance of socio-economic as well as cultural determinants in the decision process of using illegal copies of university textbooks. From a policy perspective, the analysis suggests that an effective enforcement of the copyright rules should take into account the cultural behavior and students’ learning practices.
    Keywords: Copyright, textbooks, illegal copying
    JEL: Z11
    Date: 2013–02

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