nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2016‒09‒25
three papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Remittances and Informal Work By Ivlevs, Artjoms
  2. Optimal Redistribution with a Shadow Economy By Doligalski, Pawel; Rojas, Luis E.
  3. Could a Resource Export Boom Reduce Workers' Earnings? The Labor Market Channel in Indonesia By Coxhead, Ian; Shrestha, Rashesh

  1. By: Ivlevs, Artjoms (University of the West of England, Bristol)
    Abstract: This paper studies the effects of remittances on informal employment in the migrants' countries of origin, looking both at the remittance-receiving and non-migrant households. Using data from the Social Exclusion Survey, conducted in six transition economies in 2009, I find that receiving remittances increases the likelihood of working informally. At the regional level, high prevalence of remittances is associated with a higher likelihood of informal work among non-migrant households. Migration and remittances may thus be contributing to informal employment in migration-sending countries.
    Keywords: remittances, migration, informal work, non-migrant households, transition economies, two stage residual inclusion
    JEL: F24 J46 J61 R23 O17
    Date: 2016–09
  2. By: Doligalski, Pawel; Rojas, Luis E.
    Abstract: We examine the constrained efficient allocations in the Mirrlees (1971) model with an informal sector. There are two labor markets: formal and informal. The planner observes only income from the formal market. We show that the shadow economy can be welfare improving through two channels. It can be used as a shelter against tax distortions, raising the efficiency of labor supply, and as a screening device, benefiting redistribution. We calibrate the model to Colombia, where 58% of workers are employed informally. The optimal share of shadow workers is close to 22% for the Rawlsian planner and less than 1% for the Utilitarian planner. The optimal tax schedule is very different then the one implied by the Mirrlees (1971) model without the informal sector.
    Keywords: Shadow Economy, Informal Labor Market, Income Taxation, Redistribution
    JEL: H21 H26 J46
    Date: 2016
  3. By: Coxhead, Ian (University of Wisconsin); Shrestha, Rashesh (University of Wisconsin)
    Abstract: For a decade from 2000 Indonesia underwent a natural resource export boom. Aggregate income rose, but real labor earnings stagnated. Employment rose mainly in low-skill sectors with predominantly informal employment arrangements. In this paper we reveal causal connections from the aggregate phenomenon of Dutch Disease to these labor market outcomes. We first explain broad sectoral trends, then, integrating data from several national surveys, investigate sources of variation in boom-era labor earnings. We use instrumental variables to address issues of endogeneity and selection in earnings equations. After controlling for individual and district features we find that intensity of oil palm production, a key booming resource export, robustly predicts diminished formal employment, and that lower formality, in turn, robustly predicts lower earnings. Our findings establish causal linkages absent from prior studies, and so provide a structural dimension to ongoing debates over persistent poverty, rising inequality, and lack of educational progress in Indonesia.
    Date: 2016–03

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