nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2020‒09‒21
nine papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Pay Gaps and Mobility for Lower and Upper Tier Informal Sector Employees: an investigation of the Turkish labor market By Duman, Anil
  2. The NAIRU and Informality in the Mexican Labor Market By Ana María Aguilar-Argaez; Carlo Alcaraz; Claudia Ramírez; Cid Alonso Rodríguez-Pérez
  3. Job Quality and Well-Being: Evidence from DR Congo By Christian Kamenga Mapurita
  4. Minimum Wages in Formal and Informal Sectors: Evidence from an Inflation Shock in Colombia By Pérez Pérez Jorge
  5. Earnings and Employment Sector Choice in Kenya By Robert Kivuti Nyaga
  6. Links bewteen the informal and formal/semi formal financial sectors in Malawi By C Chipeta; M.L MKandawire
  7. Determinants of Employment in the Formal and Informal Sectors of the Urban Areas of Kenya By Wambui R. Wamuthenya
  8. Vulnerabilități ale pieței muncii din România sub impactul COVID-19 By Chivu, Luminița; Georgescu, George
  9. The informal and semi-formal financial sectors in Ethiopia: a study of the iqqub, iddir, and savings and credit co-operatives By Dejene Aredo

  1. By: Duman, Anil
    Abstract: Many empirical studies found wage gaps between formal and informal sector workers even after controlling for a number of individual and firm level characteristics. While there is limited amount of research considering the same question in the Turkish labor market, wage gap between formal and informal employees generally do not take unobserved characteristics into account. In our paper, we carry this analysis for Turkey and estimate the wage gap between formal and informal sector workers utilizing panel data from Survey of Income and Living Conditions (SILC) for the period of 2014 and 2017. Mincer wage equations across quantiles are estimated considering observable and unobservable characteristics with a fixed effect model, and for sensitivity tests we regard the possibility of nonlinearity in covariate effects and estimate a variant of matching models. Our results show that informal wage penalty is persistent even after unobserved heterogeneity is taken into account, however, the penalty is not statistically significant at the upper end of the wage distribution. Moreover, we show that there are important differences between informal workers who have permanent contracts versus informal workers that have relatively more irregular work arrangements. Not only the latter is subject to earnings reductions, but they also have slightly lower probability of moving out of informal employment. We also demonstrate that the mobility of lower and upper tier informal workers is affected by different variables.
    Keywords: wage gap,quantile regression,informal sector,panel data,Turkey
    JEL: J31 C31 O17
    Date: 2020
  2. By: Ana María Aguilar-Argaez; Carlo Alcaraz; Claudia Ramírez; Cid Alonso Rodríguez-Pérez
    Abstract: The non-accelerating inflation rate of unemployment (NAIRU) is not directly observable and the presence of informal workers imposes an additional challenge in its estimation. Countries with large informal sectors, traditional measures might not depict labor slack properly, as it has the wage flexibility needed to incorporate formal workers that cannot find a formal job. In this paper, we present an estimation of the traditional NAIRU for Mexico and an alternative measure that includes informality as an indicator of labor underutilization. We find that both measures of NAIRU and the associated labor market slack indicators follow similar patterns over time. However, the slack estimated with the indicator that includes informality seems to predict inflationary pressures more accurately when the unemployment gap is close to zero.
    Keywords: Unemployment, Informality, NAIRU, Business cycle
    JEL: E26 E32 E52
    Date: 2020–07
  3. By: Christian Kamenga Mapurita
    Abstract: In the context of dualism sector-informal labour market and formal labour market, this study has assessed the impact of job quality on workerâs well-being. Using the phase 1 of the 2012 national survey data 1-2-3, the preliminary results have shown that among 1,443 of the employees, 85.44% are working in informal sector whereas 14.56% in formal sector. Given its multidimensionnal characteristics, the job quality was measured by six components such as job security, existence of union, training, employerâs support, worked hours and promotion. On other side, the well-being was measured by workerâs income and two classes-rich employee and poor employee-were created using the 2012 monetary threshold according to the place of residence. We estimated afterwards the logit model. Our results have revealed that the effect of job quality is significantly positive on workerâs well-being in both cases workers from Informal Sector and all workers irrespectively of their sector. In formal sector, the evidence of the significant impact of job quality was statistically rejected. The main explanation of this finding can be imputed to the job quality level which is already high in formal sector compared to informal sector. In view of above findings, there is a need of controlling and strengthening the job quality in informal sector for an increase in job security index by one unit, the probability that workerâs well-being increases is 0.38.
    JEL: I31 C25 C43 J01
    Date: 2020–09–08
  4. By: Pérez Pérez Jorge
    Abstract: I estimate the effect of a real minimum wage increase on formal and informal wages, and employment in Colombia. For identification, I take advantage of an unexpected increase in the real minimum wage during 1999, and I compare cities and industries with different incidence of the minimum wage increase. I measure incidence as the percentage of workers whose real minimum wage is between the old and the new real minimum wage before the increase. I find evidence of positive wage responses for wages close to the minimum wage. The results show that wages increase more in the formal than in the informal sector. I do not find that informal wages are reacting to the minimum wage indirectly, through the linkages between formal and informal markets. I show that employers in both sectors use the minimum wage as reference, although they set some wages below it. These results may not be generalizable to other countries or contexts, or to larger minimum wage increases.
    Keywords: Minimum wage;wage distribution;informal labor markets
    JEL: J31 J38 J46
    Date: 2019–09
  5. By: Robert Kivuti Nyaga (Kenya Institute for Public Policy Research and Analysis)
    Abstract: The level of participation in employment and wages paid in the labour market can be assessed by comparing relative sectoral labour compensation amounts, participation rates and skill distribution of the workforce. In addition, the level of participation in employment and differences in wages paid in any given sector are affected by both individual factors and sector-specific factors. The study estimates a multinomial logit model and selection-corrected earnings models to determine participation and earnings in various employment sectors. This study finds clear differences in the formal private and public employment sectors relative to the vast informal sector. Regression results confirm that education is the key determinant of both participation and wage earnings. Attainment of higher levels of education is related to a greater likelihood of working in private and public sectors and earning higher wages in these sectors, relative to working in the informal sector. Gender disaggregated participation and earnings models show that in contrast to men, university education has a considerable effect on women’s participation and earnings in the formal sectors. Education attainment however, a primary factor in participation and earnings determination, weakly explains participation in the typically low-wage informal sector whose stable employment growth coincides with the stagnation in the public and private sectors. Even with its characteristic low wages, to many job seekers the informal sector is where jobs can still be found.
  6. By: C Chipeta; M.L MKandawire (University of Malawi)
  7. By: Wambui R. Wamuthenya (Institute of Social Studies,Netherlands)
  8. By: Chivu, Luminița; Georgescu, George
    Abstract: The extremely fragile balance of the Romanian labor market is severely affected by the crisis caused by the COVID-19 pandemic and by the sudden and almost general deterioration of the macroeconomic context and the business environment. The present study aims to argue that, in times of crisis, such as the current one, the labor market policies need to be varied but also synergistic, in order to stimulate employment and capitalize the potential of each category, so as to contribute to the recovery of the country's macroeconomic and financial framework. Despite the Government's anti-crisis and economic support measures, in the short term, the Romanian labor market is facing the unemployment rate increase, at least in 2020, as a result of the restrictions in many activities, exacerbating the vulnerabilities of the employed population structure described in the study. The analyzes carried out revealed that, in Romania, the crisis affected practically all the members of society, but in a disproportionate manner, the most exposed being the vulnerable groups, namely people in the "gray" or informal area of the economy, those working in the most affected sectors and workers with low qualification, many deprived of the needed protection and social assistance. In the context of efforts to identify ways to reduce the distortions generated by the crisis, the integration of social security systems with social assistance can be a viable solution. As activities resume, the labor market tensions are expected to be mitigated both by labor market-specific measures, including those presented in the study, and at the macroeconomic level, adapted to the post-COVID-19 restructuring of the economy, with the necessary policy support at central and local level, including in terms of employment.
    Keywords: labor market; COVID-19 pandemic; employment; vulnerable groups; protection and social assistance; macroeconomic risks
    JEL: E24 F66 J10 J21 J46 O15
    Date: 2020–06
  9. By: Dejene Aredo (University of Addis Ababa, Ethiopia)

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