nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2013‒04‒20
eleven papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. “Informality and Overeducation in the Labor Market of a Developing Country” By Paula Herrera; Enrique López-Bazo; Elisabet Motellón
  2. The Costs of Worker Displacement in Urban Labor Markets of China By Y. Ge; H. Lehmann
  3. Re-Examination of the Surplus Agricultural Labour in China By Fung Kwan; Yanrui Wu; Shuaihe Zhuo
  4. Non-standard work, social dialogue and collective bargaining in Indonesia By Anwar, Ratih Pratiwi; Supriyanto, Agustinus
  6. Cost-reducing R&D in the presence of an appropriation alternative: an application to the natural resource curse By Puzon, Klarizze
  7. Repayment of Short Term Loans in the Formal Credit Market: The Role of Accessibility to Credit from InformalSources By Manojit Bhattacharjee; Meenakshi Rajeev
  8. Un modelo IS/LM con economía ilegal y lavado de dinero By Slim, Sadri
  9. Variable marginal propensities to pirate and the diffusion of computer software By Waters, James
  10. IGEM: a Dynamic General Equilibrium Model for Italy By Barbara Annicchiarico; Fabio Di Dio; Francesco Felici; Libero Monteforte
  11. Crescimento econômico e a distribuição da mão-de-obra entre os setores formal e informal do mercado de trabalho : teoria e evidência empírica para a economia brasileira By Thiago Luiz Rodarte; Gilberto de Assis Libânio

  1. By: Paula Herrera (Faculty of Economics, University of Barcelona); Enrique López-Bazo (Faculty of Economics, University of Barcelona); Elisabet Motellón (Faculty of Economics, University of Barcelona)
    Abstract: In this paper, we explore the connection between labor market segmentation in two sectors, a modern protected formal sector and a traditional- unprotected-informal sector, and overeducation in a developing country. Informality is thought to have negative consequences, primarily through poorer working conditions, lack of social security, as well as low levels of productivity throughout the economy. This paper considers an aspect that has not been previously addressed, namely the fact that informality might also affect the way workers match their actual education with that required performing their job. We use micro-data from Colombia to test the relationship between overeducation and informality. Empirical results suggest that, once the endogeneity of employment choice has been accounted for, formal male workers are less likely to be overeducated. Interestingly, the propensity of being overeducated among women does not seem to be closely related to the sector choice.
    Keywords: Segmented labor markets, Formal/Informal employment, Human capital, Economic development. JEL classification: O15, J21, J24.
    Date: 2013–04
  2. By: Y. Ge; H. Lehmann
    Abstract: This paper analyzes the costs of job loss in China, using unique new data from the Rural-to-Urban Migration in China (RUMIC) data set for the year 2009. We investigate conventional labor market outcomes upon displacement like the length of unemployment spells, hours worked and monthly earnings. We also analyze whether displaced workers are more likely to be in informal employment relationships or selfemployed or less happy than their non-displaced counterparts. We also look at health and psychic costs as additional outcomes. Displaced migrant workers do not encounter losses in terms of longer unemployment spells or wage penalties, while urban displaced workers incur very large costs in terms of these two outcomes. These results point to segmented urban labor markets in China. All displaced workers have an increased likelihood of being informal, while only migrants among the displaced experience a lowered incidence of self-employment. Also, health costs and psychic costs can be linked to displacement although these costs are not prevalent in a uniform fashion. Stratification of the data by gender, level of development and ownership seems important as it shows substantial heterogeneity of the costs of job loss across these dimensions.
    JEL: J64 J65 P50
    Date: 2013–04
  3. By: Fung Kwan (Department of Economics, University of Macau); Yanrui Wu (Business School, University of Western Australia); Shuaihe Zhuo (Department of Economics, University of Macau)
    Abstract: This paper contributes to the pool of studies of rural underemployment in China. It is devoted to the conceptualization and measurement of surplus labour. The agricultural labour requirement function is estimated by the stochastic frontier analysis (SFA) with China’s prefecture-level data. Surplus labour or inefficient labour is obtained by subtracting the required labour from the actual labour participated in agriculture. Our analysis indicates that the existing size of agricultural surplus labour in rural China is still significantly large with the continued practice of the household registration system and China’s WTO membership. However, the size has been decreasing over the last decade. We thus conclude that China is probably experiencing the second stage of the Lewis-Fei-Ranis dualistic economic framework.
    Date: 2012
  4. By: Anwar, Ratih Pratiwi; Supriyanto, Agustinus
    Keywords: social dialogue, collective bargaining, workers rights, outsourcing, contract labour, informal economy, economic recession, Indonesia, dialogue social, négociation collective, droits des travailleurs, externalisation des activités, travail sous contrat, économie informelle, récession économique, Indonésie, diálogo social, negociación colectiva, derechos de los trabajadores, tercerización, trabajo subcontratado, economía informal, recesión económica, Indonesia
    Date: 2012
  5. By: Liliana Sousa
    Abstract: I find evidence that human capital spillovers have positive effects on the proclivity of low human capital immigrants to self-employ. Human capital spillovers within an ethnic community can increase the self-employment propensity of its members by decreasing the costs associated with starting and running a business (especially, transaction costs and information costs). Immigrants who do not speak English and those with little formal education are more likely to be self-employed if they reside in an ethnic community boasting higher human capital. On the other hand, the educational attainment of co-ethnics does not appear to affect the self-employment choices of immigrants with a post-secondary education to become self-employed. Further analysis suggests that immigrants in communities with more human capital choose industries that are more capital-intensive. Overall, the results suggest that the communities in which immigrants reside influences their self-employment decisions. For low-skilled immigrants who face high costs to learning English and/or acquiring more education, these human capital spillovers may serve as an alternative resource of information and labor mobility.
    Date: 2013–04
  6. By: Puzon, Klarizze
    Abstract: This study proposes a new mechanism for the resource curse: crowding-out of innovation due to the existence of an option to engage in conflict. Using a game theoretical framework, it is argued that an increase in the amount of natural resources (in the informal sector where conflict for a common-pool rent materializes) reduces the incentives of entrepreneurial groups to engage in cost-reducing R&D (in the non-resource sector where production occurs). Compared to most models of the resource curse, the impact of resource abundance on income and welfare was interestingly observed to be non-monotonic. An increase in the amount of resources in the common pool induces intensified conflict among groups and less R&D investment. Depending on the relative strengths of the income and diversion effects, three scenarios were exhibited. First, there is a 1.) Pure Blessing. This happens when both the extent of technological spillovers and the initial level of resource are low. Starting from scarcity, the increase in natural resource generates an overall jump in the groups' income levels. Even if an increase in resources decreases innovation in the formal sector, both income and welfare still go up. Meanwhile, for intermediate initial values of the natural resource, there is a 2.) Pseudo-curse. A resource boom induces an immediate income effect. However, this income gain is dominated by the indirect diversion effect due to lower output and higher price (because of less cost-reducing R&D). Consequently, while income increases, the welfare of the economy decreases. The range of resource levels where this occurs is greater when spillovers are high. Finally, a 3.) Double Curse occurs for extremely high initial levels of natural resources. Both aggregate income of the economy and welfare suffer. --
    Keywords: innovation,appropriation,natural resources,conflict
    JEL: O13 Q33
    Date: 2013
  7. By: Manojit Bhattacharjee (Institute for Social and Economic change); Meenakshi Rajeev (Institute for Social and Economic change)
    Abstract: This paper is an attempt to link the problem of non-repayment in the formal credit market with the accessibility to credit from informal sources. In many developing countries a well established network of informal lenders continues to prevail in spite of various formal lending programmes implemented by the government. Scholars often dealt with how the poorer households become the victim of usurious rates of interest charged by informal lenders and lose their valuable properties. We however show that more unfavourable the terms of loan from a moneylender compared to that of a formal lending agency, better is the chance of a borrower making timely repayment and get the benefit of formal loan on a recurring basis, which is not available in case of default. After establishing the conditions theoretically, the paper using National Sample Survey Organisation (NSSO, India) database, empirically tries to examine such an impact in the case of short term formal loans. The empirical analysis reveals the positive and significant impact of informal interest rates on repayment of formal loans.
    Keywords: Repayment, Formal Lending Agency, Informal Lending Agency
    Date: 2012
  8. By: Slim, Sadri
    Abstract: The purpose of this paper is to present an extended version of the IS/LM model, with illegal economy and money laundering in a closed economy, which allows an macroeconomic analysis of the effects of this presence on short-term equilibrium. Without disregarding the FATF´s money laundering typology, we propose to differentiate the money laundering activities by the degree of crime organization. Thus, in a closed economy, we suppose two money laundering channels, through consumption and investment, which are reflecting the reintegration of the illegal money by individual criminals and by the organized crime. It is shown that the multiplier effect of the illegal economic activities is always negative on formal GDP, while the effect on the interest rate depends on the structure of the considered economy.
    Keywords: Money Laundering; ISLM Model; Multiplier effects; Informal Economy
    JEL: E12 E26 E4 O17
    Date: 2013–04–17
  9. By: Waters, James
    Abstract: In this paper, we empirically investigate the dynamics of the marginal propensity to pirate for computer software. We introduce a state space formulation that allows us to estimate error structures and parameter significance, in contrast to previous work. For data from 1987-92, we find a rising propensity to pirate as the number of existing pirate copies increases, and higher late piracy incidence than implied by static models. We strengthen prior results on the impact of piracy in the spreadsheet market, finding it to be the only significant internal influence on diffusion. However, when we allow for negative error correlation between legal and pirate acquisitions, we contradict earlier work by finding that, in the word processor market, piracy did not contribute to diffusion and only eroded legal sales.
    Keywords: Computers, software, piracy, technology, diffusion
    JEL: O3 O33
    Date: 2013–04–10
  10. By: Barbara Annicchiarico; Fabio Di Dio; Francesco Felici; Libero Monteforte
    Abstract: This paper provides a full technical account of the Italian General Equilibrium Model (IGEM), a new dynamic general equilibrium model for the Italian economy developed at the Department of Treasury of the Italian Ministry of the Economy and Finance. IGEM integrates typical New Keynesian elements, such as imperfect competition and nominal rigidities, into a general equilibrium framework. One of the key features of the model is the detailed representation of the labor market, designed to capture the dualism of the Italian economic system. The new model will serve as a laboratory for policy analysis.
    Keywords: Dynamic General Equilibrium Model, Simulation Analysis, Italy
    JEL: E27 E30 E60
    Date: 2013–04
  11. By: Thiago Luiz Rodarte (Cedeplar-UFMG); Gilberto de Assis Libânio (Cedeplar-UFMG)
    Abstract: The hypothesis that in the long run only supply conditions can explain economic growth has been challenged by research that attaches a central role to demand conditions. In this case, there would be a feedback process in which productivity and labor supply would affect aggregate demand and this would impact the former. Several studies have addressed empirically the impact of growth on productivity and of productivity on growth, but the impact of labor supply on growth and vice versa have not been sufficiently analyzed. This paper aims to investigate whether such a relationship exists for the Brazilian economy, taking into account an important feature of its labor market, namely the high participation of workers in precarious situation in total employment. So the informal side of the labor market would act as a supplier of labor to the formal sector, what would contribute to growth, which in turn would cause formality (informality) to increase (decrease). We estimate a VAR model and find a negative relationship between demand conditions and the number of workers in precarious employment, as well as a positive relationship between the number of workers in the formal market and aggregate demand.
    Keywords: growth, aggregate demand, labor market, formality, informality
    JEL: O17 J21
    Date: 2012–02

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