nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2019‒02‒11
five papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Labor Market Search, Informality, and On-The-Job Human Capital Accumulation By Bobba, Matteo; Flabbi, Luca; Levy, Santiago; Tejada, Mauricio
  2. The Effect of Exports on Labor Informality : Evidence from Argentina By Safojan, Romina
  3. Seeking Rent in the Informal Sector By Kar, Saibal; Mandal, Biswajit; Marjit, Sugata; Mukherjee, Vivekananda
  4. The impact of e-wallet on informal farm entrepreneurship development in rural Nigeria By Uduji, Joseph; Okolo-Obasi, Elda; Asongu, Simplice
  5. Raising more public revenue in Indonesia in a growth - and equity-friendly way By Christine Lewis

  1. By: Bobba, Matteo; Flabbi, Luca; Levy, Santiago; Tejada, Mauricio
    Abstract: We develop a search and matching model where firms and workers produce output that depends both on match-specific productivity and on worker-specific human capital. The human capital is accumulated while working but depreciates while searching for a job. Jobs can be formal or informal and firms post the formality status. The equilibrium is characterized by an endogenous steady state distribution of human capital and by an endogenous formality rate. The model is estimated on longitudinal labor market data for Mexico. Human capital accumulation on-the-job is responsible for more than half of the overall value of production and upgrades more quickly while working formally than informally. Policy experiments reveal that the dynamics of human capital accumulation magnifies the negative impact on productivity of the labor market institutions that give raise to informality.
    Keywords: Labor market frictions; Search and matching; Nash bargaining; Informality; On-the-Job human capital accumulation
    JEL: J24 J3 J64 O17
    Date: 2019–01
  2. By: Safojan, Romina (Tilburg University, Center For Economic Research)
    Abstract: This paper explores the causal impact of exports on the share of informal labor in the Argentinean manufacturing sector. Using an instrumental variable approach to address potential endogeneity concerns, I show that an exogenous 10 percentage points increase in export intensity induces a reduction of the informality rate of 2.2 percentage points. Then, I explore the channel through which exports affect informality. By differentiating exports according to the income group of their destinations, I find that the aggregate effect of exports is explained by the sales to high-income countries. Moreover, the effect is partially explained by an increase in the complexity of the tasks performed in the jobs. Overall, the evidence suggests that under an increase in the demand of higher quality exports, the manufacturing firms increase their productivity by reducing their share of informal workers.
    Keywords: exports; labor informality; productivity; task complexity; Argentina
    JEL: F16 J24
    Date: 2019
  3. By: Kar, Saibal (Centre for Studies in Social Sciences, Calcutta); Mandal, Biswajit (Visva Bharati); Marjit, Sugata (Centre for Studies in Social Sciences, Calcutta); Mukherjee, Vivekananda (Jadavpur University)
    Abstract: Rent seeking within the vast informal segment of the developing world is a relatively underdexplored topic in the interface of labor market policies and public economics. Moreover, how rent seeking and corruption within the informal segment is affected by economic reforms targeted for the formal sector is rarely discussed in the literature. This paper fills the gap. We identify conditions under which economic reform in the formal segment will increase the rate of corruption or rent seeking in the informal sector and raise the pay-off for those involved in rent seeking activities. When formal sector contracts due to reforms, offsetting forces determine the magnitude of rent seeking in the informal sector. Thus, economic reforms may increase corruption instead of reducing it, as claimed previously.
    Keywords: corruption, rent seeking, reforms, informal sector, regulators
    JEL: D73 E26 M48
    Date: 2019–01
  4. By: Uduji, Joseph; Okolo-Obasi, Elda; Asongu, Simplice
    Abstract: Transforming agriculture from a largely subsistence enterprise to a profitable commercial venture is both a prerequisite and a driving force for accelerated development and sustainable growth in sub-Saharan Africa. The objective of this investigation is to assess the impact of the Federal Government of Nigeria (FGN) e-wallet programme on informal farm entrepreneurship development in rural Nigeria. Informal sector farmers are those that are not legally registered at the national level though could be connected to a registered association. The research is motivated by the absence of literature focusing on the problem statement or objective of study. One thousand, one hundred and fifty-two rural farmers were sampled across the six geo-political zones of Nigeria. Results from the use of a bivariate probit model indicate that the mobile phone-based technology via the e-wallet programme is a critical factor that has enhanced farm entrepreneurship in rural Nigeria. However, results also show that the impact of mobile phones (as a channel to accessing and using modern agricultural inputs) is contingent on how mobile networks are able to link farmers who live in rural areas and work mainly in farming. The results suggest that increasing mobile phone services in rural Nigeria enhances farmers’ knowledge, information and adoption of improved farm inputs and by extension, spurs rural informal sector economic activities in sub-Saharan Africa. Implications for practice, policy and research are discussed.
    Keywords: Informal sector’s adoption, electronic wallet technologies, rural farmers’ entrepreneurship, Nigeria, developing countries
    JEL: L96 O40 O55 Q10 Q14
    Date: 2018–01
  5. By: Christine Lewis
    Abstract: Indonesia’s government needs more revenue to fund spending that can boost GDP growth, raise well-being and reduce poverty. The tax-to-GDP ratio is low relative to other emerging market economies. The difficulty is to raise revenues without denting growth or worsening inequality. Successive reforms have modernised the tax administration and increased the number of taxpayers. Nonetheless, raising compliance is an ongoing challenge and investing in the tax administration rightly remains a government priority. There is also scope to improve the design of various taxes. Broadening the bases of income and consumption taxes would raise more revenue and reduce distortions. Expanding property taxation, if appropriately implemented, could provide additional funds for local governments. Taxes can also be used more extensively to discourage activities and behaviours with negative health and environmental externalities. Strengthening property rights and fighting illegal extraction would increase revenues from Indonesia’s natural resource wealth.This Working Paper relates to the 2018 OECD Economic Survey of Indonesia ( y-indonesia.htm).
    Keywords: business tax, consumption tax, green taxation, income tax, Indonesia, natural resources taxation, property tax, tax compliance, tax systems
    JEL: H23 H24 H25 H26
    Date: 2019–02–13

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