nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2019‒10‒07
four papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Enforcing higher labour standards within developing country value chains: Consequences for MNEs and informal actors in a dual economy By Narula, Rajneesh
  2. Social Security Reform, Retirement and Occupational Behavior By Pedro Cavalcanti Ferreira; Rafael Parente
  3. Trade Liberalization and Labor Market Adjustment in Botswana By Margaret S. McMillan; Brian McCaig
  4. The Effects of Land Markets on Resource Allocation and Agricultural Productivity By Chaoran Chen; Diego Restuccia; Raul Santaeulalia-Llopis

  1. By: Narula, Rajneesh (Henley Business School, University of Reading, UK)
    Abstract: The 2013 Rana Plaza disaster led external stakeholders to insist on higher labour standards in apparel global value chains (GVCs). Stakeholders now expect MNEs to take 'full-chain' responsibility. However, the increased monitoring and enforcement costs of a large network of suppliers have been non-trivial. MNEs instead implement a 'cascading compliance' approach, coupled with a partial re-internalisation. Elevated costs are further exacerbated in developing countries where the informal and formal sector are linked, and cost competitiveness greatly depends on this duality. Monitoring actors in the informal sector is difficult, and few informal actors can achieve compliance. GVCs have therefore reduced informal sector engagement by excluding non-compliant actors and investing in greater automation. By seeking to strictly enforce compliance, MNEs are attenuating some of the positive effects of MNE investment, particularly the prospects for employment creation (especially among women), and enterprise growth in the informal sector. I discuss how these observations might inform other cross-disciplinary work in development, ethics, and sociology. Finally, I note implications for IB theory from the disparities between the ownership, control and responsibility boundaries of the firm.
    Keywords: informal economy, MNEs, duality, Bangladesh, compliance, GVCs
    JEL: E26 F23 J8
    Date: 2019–09–20
  2. By: Pedro Cavalcanti Ferreira (EPGE-FGV); Rafael Parente (Princeton University)
    Abstract: In most countries, the rules governing public and private pension systems are different, and so are hiring procedures and job contracts. The tenures of government employees are longer and their wages, in general, higher. This article studies, in a life-cycle economy with three sectors - formal, informal and public – and endogenous retirement, the macroeconomic and occupational impacts of social security reforms in an economy with multiple pension systems. In a model calibrated to Brazil, we simulate and assess the long-run impact of reforms being discussed and/or implemented in different economies. Among them, the unification of pension systems and the increase of minimum retirement age. These reforms are found to affect the decision to apply to a public job, savings during the life cycle and skill composition across sectors. They also lead to higher output, less informality and average welfare gains.
    Date: 2019
  3. By: Margaret S. McMillan; Brian McCaig
    Abstract: We study the effects of domestic trade liberalization on labor markets in Botswana. South Africa is the dominant member of the Southern Africa Customs Union. As such, when South Africa liberalized trade in the 1990s, this induced large and plausibly exogenous tariff reductions for the other customs union members, including Botswana. Using labor force surveys from Botswana spanning a decade, we find that trade liberalization did not affect the relative size of industries in terms of employment. However, trade liberalization had effects within industries. We find an increase in the prevalence of working in an informal firm and self-employment, but mixed evidence of effects on unemployment. Hours worked decreased in response to trade liberalization, partially driven by the movement of workers to informal firms. Despite large increases in aggregate income, trade liberalization is associated with a reduction in monthly income, but the results are imprecise. Our results also suggest that a positive export demand shock, the 2000 African Growth and Opportunities Act, is associated with a reduction in employment in informal firms in the clothing industry.
    JEL: F1
    Date: 2019–09
  4. By: Chaoran Chen; Diego Restuccia; Raul Santaeulalia-Llopis
    Abstract: We assess the effects of land markets on misallocation and productivity by exploiting policy-driven variation in land rentals across time and space arising from a large-scale land certification reform in Ethiopia, where land remains owned by the state. Our main finding from detailed micro panel data is that land rentals substantially reduce misallocation and increase agricultural productivity. Our evidence builds from an empirical difference-in-difference strategy, an instrumental variable approach, and a calibrated quantitative macroeconomic framework with heterogeneous household-farms that replicates, without targeting, the empirical effects. These effects are nonlinear, impacting more farms farther away from efficient operational scale, consistent with our theory. Using our model, we find that more active land markets reduce inequality, an important concern for the design of land policy. We also find that the positive effects of land markets are mainly driven by formal market rentals as opposed to informal rentals. Finally, our analysis also provides evidence that land markets increase the adoption of more advanced technologies such as the use of fertilizers.
    Keywords: Land markets, rentals, effects, misallocation, productivity, inequality, micro data, quantitative macro, informal markets, technology, fertilizers.
    JEL: E02 O10 O11 O13 O43 O55 Q10 Q15 Q18 Q24 D5
    Date: 2019–09–26

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