nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2022‒03‒07
five papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Immigration, Wages and Employment under Informal Labor Markets By Delgado-Prieto, Lukas
  2. Minimum Wage Shocks in an Estimated DSGE Model with Underreporting By Alisher Tolepbergen
  3. The welfare effects of unemployment insurance in Argentina. New estimates using changes in the schedule of transfers By Martin Gonzalez-Rozada; Hernan Ruffo
  4. Poverty, wealth inequality, and financial inclusion among castes in Hindu and Muslim communities in Uttar Pradesh, India By Tiwari, Chhavi; Goli, Srinivas; Siddiqui, Mohammad Zahid; Salve, Pradeep
  5. Fighting the soaring prices of agricultural food products. VAT versus Trade tariffs exemptions in a context of imperfect competition in Niger : CGE and micro-simulation approach By Celine de Quatrebarbes; Bertrand Laporte; Stéphane Calipel

  1. By: Delgado-Prieto, Lukas
    Abstract: This paper studies the labor market impacts of a massive inflow of Venezuelans in Colombia. By comparing areas that received different shares of migrants, I find a negative effect on wages and on local employment for natives. The negative wage effect is driven by a large drop of wages in the informal sector, where migrants are mostly employed, while the negative employment effect is driven by a reduction of employment in the formal sector, where the minimum wage is binding. To explain these results, I develop a model in which firms hire formal and informal workers with different costs. If these workers have a high degree of substitutability, and wages for formal workers are rigid, firms reallocate formal to informal employment as a response to lower informal wages. In settings with informal labor markets migration can therefore lead to asymmetric employment and wage effects across the informal and formal sectors.
    Date: 2021–09–26
  2. By: Alisher Tolepbergen (NAC Analytica, Nazarbayev University)
    Abstract: We build and estimate a New Keynesian DSGE model to analyze the macroeconomic effects of minimum wage shocks in an economy characterized by a high degree of wage underreporting. The estimation results suggest that the effect of the minimum wage shocks to all economic aggregates but employment is not significant. The impulse response analysis shows that a higher degree of underreporting results in less responsive dynamics to the minimum wage shocks. In addition, the magnitude of the responses is also affected by the share of Non-Ricardian households in the economy. Overall, we find that an increase in the minimum wage in the economy with a high degree of underreporting does not significantly affect the dynamics of macroeconomic variables.
    Keywords: DSGE; Minimum Wage; Underreporting; Non-Ricardian; Bayesian Estimation.
    JEL: C11 E24 E26 E64
    Date: 2021–10
  3. By: Martin Gonzalez-Rozada; Hernan Ruffo
    Abstract: Unemployment insurance transfers should balance the provision of consumption to the unemployed with the disincentive effects on the search behavior. Developing countries face the additional challenge of informality. Workers can choose to hide their employment state and labor income in informal jobs, an additional form of moral hazard. To provide evidence about the effects of this policy in a country affected by informality we exploit kinks in the schedule of transfers in Argentina. Our results suggest that higher benefits induce moderate behavioral responses in job-finding rates and increase re-employment wages. We use a sufficient statistics formula from a model with random wage offers and we calibrate it with our estimates. We show that welfare could rise substantially if benefits were increased in Argentina. Importantly, our conclusion is relevant for the median eligible worker that is strongly affected by informality.
    Date: 2022–02
  4. By: Tiwari, Chhavi; Goli, Srinivas; Siddiqui, Mohammad Zahid; Salve, Pradeep
    Abstract: This study estimates poverty, wealth inequality, and financial inclusion, for the first time, at the sub-caste level in both Hindus and Muslims using a unique survey data collected from 7124 households in Uttar Pradesh, India, during 2014-2015. The results confirm the existing hypothesis that Brahmins, Thakurs, and other Hindu general castes have higher wealth accumulation, lower poverty, and lesser exclusion from formal financial services than Dalits. Exclusion from formal financial services forces Dalits to depend primarily on informal financial sources for borrowing—which leads to financial misfortune and further dragging them into a vicious cycle of poverty.
    Date: 2022–01–04
  5. By: Celine de Quatrebarbes (FERDI - Fondation pour les Etudes et Recherches sur le Développement International); Bertrand Laporte (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne); Stéphane Calipel (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)
    Abstract: As happened in West Africa in 2008, in an imported inflation context, it is common for the governments to take short-term tax action to protect the poor: VAT or trade tariffs exemptions. As part of the tax-tariff transition, the comparison between Trade tariffs and VAT has already been the subject of much works. The introduction of VAT, as a tax on final consumption, is supposed to be optimal, due to its economically neutral aspect for production decisions. However, some authors show that in developing countries, a large informal sector affects this result. In this paper, we use a CGE model and a micro-simulation model to compare the effects of VAT and Trade tariffs exemptions to combat rising agricultural food prices. The approach is innovative because it integrates how VAT works in developing countries (VAT increases production costs for some producers), in a context of imperfect competition for the service of marketing products. Results show that VAT exemptions are more effective than Trade tariffs exemptions in limiting the effects of the rise in world prices on poverty in Niger. In the context of the current increase in food prices linked to the Covid-19 crisis (FAO, 2020), this issues may one again be in the limelight for the African governments.
    Keywords: Computable general equilibrium model,Imperfect competition,Indirect taxes,Poverty,Niger
    Date: 2021–02

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