nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2018‒02‒05
five papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Informal Employment Relationships and the Labor Market: Is There Segmentation in Ukraine? By Lehmann, Hartmut; Pignatti, Norberto
  2. Examining Vulnerabilities: the Cycle Rickshaw Pullers of Dhaka City By Wadood, Syed Naimul; Tehsum, Mostofa
  3. Regional Integration and Informal Trade in Africa: Evidence from Benin's Borders By Cristina Mitaritonna; Sami Bensassi; Joachim Jarreau
  4. Trade bust, labor and wage policy in Bolivia: a CGE approach By Rolando Morales; Erick Gomez; Monica Cueto; Estefani Parisaca; Jazmin Illanes
  5. Underground Activities and Labour Market Performance By Kolm, Ann-Sofie; Larsen, Birthe

  1. By: Lehmann, Hartmut (University of Bologna); Pignatti, Norberto (ISET, Tbilisi State University)
    Abstract: One of the most important factors that determine individuals' quality of life and wellbeing is their position in the labor market and the type of jobs that they hold. When workers are rationed out of the formal segment of the labor market against their will, i.e., the labor market is segmented, their quality of life is limited, and their wellbeing is reduced. When they can freely choose between a formal or informal employment relationship, i.e., the labor market is integrated, their wellbeing can reach high levels even in the presence of informal employment. We, therefore, test whether the Ukrainian labor market is segmented along the formal-informal divide, slicing the data by gender and age. The analysis that we perform consist in the analysis of short-term and medium-term transitions between five employment states, unemployment and inactivity. We also analyze wage gaps of mean hourly earnings and across the entire hourly earnings distribution, controlling for time-invariant unobserved heterogeneity. According to our results segmentation is present for dependent employees: for a large part of informal employees informal employment is used as a waiting stage to enter formal salaried employment and is not voluntarily chosen. As far as self-employment is concerned the evidence is mixed regarding in the Ukrainian labor market. This heterogeneity in outcomes implies that not all informal work is associated with a low quality of life and reduced wellbeing in post-transition economies.
    Keywords: informal employment, labor market segmentation, post-transition economies, Ukraine
    JEL: J31 J40 P23
    Date: 2018–01
  2. By: Wadood, Syed Naimul; Tehsum, Mostofa
    Abstract: Dhaka, capital city of Bangladesh, is one of the fastest growing cities of the world in terms of population concentration. Centrally located, it attracts a large number of job seeking migrants from the rural areas of entire Bangladesh on a continuous basis. Some of these job seeking migrants are readily absorbed in the urban informal service sector, which includes cycle rickshaw pulling. Cycle rickshaw pulling is arduous and stressful, with no promotion prospect or insurance for occupational hazards such as accident injuries, while entry is easy as education and training as well as capital asset requirement is minimal. In order to examine vulnerabilities of the rickshaw pullers, a structured questionnaire survey has been conducted on a total of 120 randomly selected cycle rickshaw pullers in five locations across the Dhaka city. The primary survey has examined their current living conditions, livelihood strategies, shocks and insurances against shocks. The respondents lacked education and skill training, did not own capital assets and mostly supported their families stationed in the rural areas with earnings from this cycle rickshaw pulling. Econometric models of OLS and probit regression have been utilized to examine a number of issues, and the results are expected. Most respondents were willing to educate their children and did not want to include them in this sector. There are potentials of entrepreneurship if they are skill trained, financed and advised properly. They are reported to be willing to improve their living conditions, which is difficult due to the vulnerabilities that they face.
    Keywords: Cycle Rickshaw Pullers, Vulnerabilities, Migration, Urban Informal Sector, Sustainable Livelihood, Dhaka
    JEL: I31 J81 O17
    Date: 2018–01–15
  3. By: Cristina Mitaritonna; Sami Bensassi; Joachim Jarreau
    Abstract: Regional trade is low in sub-saharan Africa. But a large share of regional trade is informal, i.e. not recorded in offcial data. This paper studies the relationship between trade barriers and informality of trade. We use an original survey of informal transactions across Benin's land borders, which provides the first direct and comprehensive account of trade volumes and product coverage for this type of trade. We combine this data with official trade records and exploit variation across products and countries to measure the impact of tariff and non-tariff barriers to trade on informality. Increasing tariffs on a given product by 10% makes it about 12% more likely that this product is imported informally rather than formally. Non-tariff measures also increase informality. Our results also suggest that compliance costs, aside from tariffs and regulations, contribute to explain informality.
    Keywords: Informal Trade;Regional Integration;Trade Facilitation;Evasion;Africa
    JEL: O17 F15 H26
    Date: 2017–12
  4. By: Rolando Morales; Erick Gomez; Monica Cueto; Estefani Parisaca; Jazmin Illanes
    Abstract: In this paper, we evaluate the possible impact of the labor and wage policy in Bolivia’s economy in the event of a reduction in the price of exports. For this analysis, we use a CGE model with a 2012 SAM. The Bolivian labor policy is characterized by compulsory increments in the private formal wage and an expanding labor force in the public services. A labor supply function allows migration between formality and informality and a reservation wage curve differentiates the nature of unemployment in the formal and the informal sector. The labor and wage policy does three things: 1) it promotes household consumption but reduces the GDP, decreases investment and growth, 2) it increases the rate of formality only at the expense of higher unemployment, and 3) it swells the primary sector to the detriment of the secondary sector. In the face of a decrease in commodity prices, Bolivia needs to make a correction of course in the labor and wage policy.
    Keywords: Formal and Informal Sectors, Simulation Modeling
    JEL: O17 C68 F16
    Date: 2017
  5. By: Kolm, Ann-Sofie (Stockholm University); Larsen, Birthe (Department of Economics, Copenhagen Business School)
    Abstract: We build a general equilibrium model in terms of a search and matching model with an informal sector. We consider the impact of the traditional policy instruments considered in the tax evasion literature, such as changes in the tax- and punishment system as well as changes in the employment protection legislation and concealment costs, on labour market outcomes. To this end, we set-up a model which allows workers to allocate their search for formal and informal sector jobs optimally. We calibrate and simulate the model to fit the North and the South of Europe, where the share of informal sector workers is equal to three percent in the North and more than 4 times as high in the South. We consider the impact of concealment costs, as there are large differences in terms of tax administration procedures between the South and the North, in terms of that Northern countries make more extensively use of third-party reporting. We also examine whether stricter employment protection legislation in Southern Europe may explain the observed fact.
    Keywords: informal economy; tax policy; tax evasion; Northern Europe; Southern Europe;
    JEL: E24 E26 H26
    Date: 2018–01–29

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