nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2015‒02‒22
twelve papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Employment, Earnings and Social Protection for Female Workers in Vietnam’s Informal Sector By Nguyen, Duy Loi; Nguyen, Binh Giang; Tran, Thi Ha; Vo, Thi Minh Le; Nguyen, Dinh Ngan
  2. Does risk matter for occupational choices? Experimentsl evidence from an African labour market By Paolo Falco
  3. The impact of ICTs on the informal economy By Garcia-Murillo, Martha; Velez-Ospina, Jorge Andres
  4. Preferential Trade Agreements, Unemployment, and the Informal Sector By Heid, Benedikt
  5. Does the Nigerian formal sector pay more than its informal sector? By Alberto Behar
  6. “I would rather have a decent jobâ€: Barriers preventing street waste pickers from improving their socioeconomic conditions By Kotie Viljoen, Phillip Blaauw and Rinie Schenck
  7. The Impact of Arab Spring on Hiring and Separation Rates in the Tunisian Labour Market By Haouas, Ilham; Heshmati, Almas
  8. Estimating Labor Demand Function in the Presence of Undeclared Labour: A Look Behind the Curtain By Edoardo Di Porto; Leandro Elia
  9. Higher taxes, more evasion? Evidence from border differentials in TV license fees By Berger, Melissa; Fellner-Röhling, Gerlinde; Sausgruber, Rupert; Traxler, Christian
  10. Fiscal federalism and tax enforcement By Bönke, Timm; Jochimsen, Beate; Schröder, Carsten
  11. Deception Choice and Audit Design - The Importance of Being Earnest By Lohse, Tim; Konrad, Kai A.; Qari, Salmai
  12. Entrepreneurial Saving Practices and Reinvestment: Theory and Evidence from Tanzanian MSEs By Thorsten Beck; Haki Pamuk; Burak R Uras

  1. By: Nguyen, Duy Loi; Nguyen, Binh Giang; Tran, Thi Ha; Vo, Thi Minh Le; Nguyen, Dinh Ngan
    Abstract: The informal sector plays an important role in employment creation and poverty reduction among female laborers in Vietnam. Currently, around 70 percent to 80 percent of women in Vietnam work in the informal sector, of which about 60 percent are in the agriculture and 20 percent are in the non-agricultural sectors that are mostly affiliated with small-size production and service units. By investigating the employment, earnings, and social protection policy on female labor in Vietnam’s informal sector, this research is able to answer the following research questions: 1) How important is the role of female labor in the informal sector? 2) What are the important factors that influence job opportunities for women in the informal sector? 3) What are the policy implications on female labor in Vietnam's informal sector? 4) What are the causes of work insecurities among females in Vietnam's informal sector? 5) What areas of social protection are most needed by women workers? 6) How does one address these principal needs for social protection among female workers?
    Keywords: informal sector, labor market, social protection
    JEL: J70 O15 O17
    Date: 2014–04
  2. By: Paolo Falco
    Abstract: This paper investigates the role of risk-aversion in the allocation of workers between formal and informal jobs in Ghana.  In the model I propose risk-averse workers can opt between the free-entry informal sector and queuing for formal occupations.  Conditional on identifying the riskier option, the model yields testable implications on the relationship between risk-preferences and workers' allocation.  My testing strategy proceeds in two steps.  First, I estimate expected income uncertainty through panel data and find it significantly higher in the informal sector.  Second, using novel experimental data to elicit individual attitudes to risk, I estimate the direct effect of risk-aversion on occupational choice and find that, in line with the first result, more risk-averse workers are more likely to queue for formal jobs and less likely to be in the informals sector.  The results bear important implications for the optimal design of employment policies and social security.
    Keywords: sector allocation, occupational choices, risk-aversion, informality
    Date: 2013–10–31
  3. By: Garcia-Murillo, Martha; Velez-Ospina, Jorge Andres
    Date: 2014
  4. By: Heid, Benedikt
    Abstract: What are the welfare and employment consequences of preferential trade agreements (PTAs) for developing and emerging countries? Standard quantitative models of international trade which are generally used to assess the impact of PTAs assume full employment and hence abstract from (net) employment effects. This paper presents a quantitative framework to study the welfare and employment effects of PTAs taking into account the key feature of labor markets in emerging economies: A large share of workers is employed in the informal sector which is characterized by low productivity and hence lower wages than those in the formal part of the economy. To illustrate, I apply this framework to a set of 13 Latin American and Caribbean countries to evaluate observed trade liberalization episodes since 1950, taking into account the general equilibrium trade diversion and income effects of PTAs which have been neglected in the literature so far.
    JEL: F16 F13 O17
    Date: 2014
  5. By: Alberto Behar
    Abstract: Nigerian data from the early 2000s indicates that formal sector earnings are about 70% higher than informal sector earnings but, for men, part of this is due to an educational composition effect.  The returns to education are lower in the informal sector than in the formal sector, but mainly at the post-secondary stage because formal sector earnings are more convex in education.  We find no evidence that other skill acquisition methods contribute to earnings, but apprenticeships are positively associated with selection into the informal sector while vocational training or other courses tend to be coupled with work in the formal sector.  These results are subject to a number of interpretations, so it remains an open question whether a perison with given observed or unobserved characteristics would earn more in the formal sector.
    Date: 2013–12–10
  6. By: Kotie Viljoen, Phillip Blaauw and Rinie Schenck
    Abstract: As a result of the high levels of unemployment in South Africa many unskilled people are forced to resort to a variety of income-generating activities in the informal economy. The activity of collecting and selling recyclables presents virtually no barriers to entry, making it a viable option. Very little research focusing on street waste pickers is done, and when done it mostly takes the form of case studies. This article reports the results of the first country-wide research into the barriers that prevent street waste pickers from improving their socioeconomic circumstances. The study used a mixed method approach. Structured interviews were conducted between April 2011 and June 2012 with 914 street waste pickers and 69 buy-back centres in 13 major cities across all nine provinces in South Africa. Low levels of schooling, limited language proficiency, uncertain and low levels of income as well as limited access to basic social needs make it difficult for waste pickers to move upwards in the hierarchy of the informal economy. The unique set of socioeconomic circumstances under which street waste pickers operate in the various cities and towns in South Africa makes the design for any possible policy interventions a complex one. Policy makers will have to take note of the interdependence of the barriers identified in this research. Failing to do so may cause policies that are aimed at supporting street waste pickers to achieve the exact opposite and ironically deprive them of their livelihood.
    Keywords: Informal economy, Street waste pickers, recycling
    Date: 2015
  7. By: Haouas, Ilham (Abu Dhabi University); Heshmati, Almas (Jönköping University, Sogang University)
    Abstract: This paper analyses the hiring and separation rates in Tunisia before and after the Arab Spring of 2011. Several models are specified to study employment decisions based on quarterly administrative firm level data over the period of 2007 to 2012. The data provides information about important firm characteristics such as industry sector, number of hiring and separation, total employment effects and composition of labour force by gender, managerial level and age cohorts. Six models are estimated to investigate hiring, separation, hiring rate, separation rate, mobility, and net-employment. The results indicate presence of continued risk factors in Tunisia's labour market resulting from the global financial crisis in 2008 and the Arab Spring in 2011. Hiring was little changed during this time period, and the results suggest that factors that impact separation decisions remained present in Tunisia's labour market. In addition, the paper looks at various social issues such as youth unemployment and infer on how more efficient policy actions that will further engage the private sector could result in more sustainable positive net-employment and increased labour mobility.
    Keywords: hiring, separation, labour mobility, net-employment, informal sector, Tunisia, Arab Spring, global financial crisis
    JEL: E24 J23 J63
    Date: 2015–01
  8. By: Edoardo Di Porto (Università di Napoli Federico II, CSEF and UCFS, Uppsala University); Leandro Elia (Centre for Research on Impact Evaluation (CRIE), Econometrics and Applied Statistics Unit, European Commission - DG Joint Research Centre)
    Abstract: This paper presents estimates of the own-wage elasticity for undeclared labour demand and calculates the effects of undeclared work on declared wages of various skill levels. To identify the parameters of interest, we exploit a quasiexperimental setting created by three tax amnesty laws brought brought into force in 2002 in Italy. Our main results indicate that an upward shift in undeclared work decreases undeclared wages, increases declared wages, and reduces wage inequality in the declared sector. We find q-complementarity between undeclared workers and low to medium-skilled workers.
    Date: 2015–02–17
  9. By: Berger, Melissa; Fellner-Röhling, Gerlinde; Sausgruber, Rupert; Traxler, Christian
    Abstract: This paper studies the evasion of TV license fees in Austria. We exploit border differentials to identify the effect of fees on evasion. Comparing municipalities at the low- and high-fee side of state borders reveals that higher fees trigger significantly more evasion. The central estimate from a spatial regression discontinuity design indicates that a one percent increase in fees raises the evasion rate by 0.3 percentage points. The positive effect of fees on evasion is confirmed in different parametric and non-parametric approaches and survives several robustness checks.
    Keywords: Evasion,TV License Fees,Border Tax Differentials,Regression Discontinuity Design
    JEL: H26 H27
    Date: 2015
  10. By: Bönke, Timm; Jochimsen, Beate; Schröder, Carsten
    Abstract: In many federations, fiscal equalization schemes soften fiscal imbalances across the member states. Such schemes usually imply that a member state internalizes only a small fraction of the additional tax revenue from an expansion of the state-specific tax base, while the remainder of the additional tax revenue is redistributed horizontally or vertically. We address the question as to which extent state-level authorities in such a federation under-exploit their tax bases. By means of a stylized model we show that the state authorities in such a federation have incentives to align the effective tax rates of the state residents to the internalized marginal return from a stricter enforcement of the tax law. We empirically test the model using two approaches. In a state-level approach, we explore whether the state-specific internalized marginal returns matter for the states investments in tax enforcement. In a micro-econometric approach, using OLS regressions and natural-experiments, we explore whether internalized marginal returns matter for the effectiveness of the states tax enforcement activities, captured by the tax deductions granted to tax units. All our estimates support the results from our theoretical model.
    JEL: H21 H77 C21
    Date: 2014
  11. By: Lohse, Tim; Konrad, Kai A.; Qari, Salmai
    Abstract: We study deception choices and deception detection in a tax compliance experiment. We find large systematic differences in individual deception abilities. Tax payers are conscious about their own deception abilities. The empirical outcomes are in line with a theory suggesting that tax payers make their choices whether to underreport or report truthfully on the basis of their own deception ability. Tax payers with high deception ability are more likely to underreport. This selection effect is stronger if the fines for underreporting are higher. These results provide an (additional) reason why random audits are superior to audits based on discretionary choice.
    JEL: H31 K42 C91
    Date: 2014
  12. By: Thorsten Beck; Haki Pamuk; Burak R Uras
    Abstract: What is the relationship between entrepreneurial saving practices and reinvestment?  We develop a model of entrepreneurial finance and show that entrepreneurial reinvestment decisions depend on the efficiency of saving practices.  Utilizing a novel micro & small enterprise survey from Tanzania we test the empirical implications of this theory.  We find (1) saving for business purposes and earnings reinvestment are positively related; (2) the practice of saving in a deposit account of a formal financial institution is more likely to facilitate a reinvestment compared to the practice of keeping savings within the household.  We also show that the negative impact of saving within-the-household on investment is more pronounced for family members with inherently low intra-household bargaining power - such as females and non-head household members.  Our work contributes to the recent debate on the implications of saving instruments in developing countries, and suggests informal saving practices as potential barriers to microenterprise performance.
    Keywords: Micro- and small enterprises, savings, reinvestment, Tanzania
    JEL: D14 G21 O12 O16
    Date: 2014–04–07

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