nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2023‒11‒27
five papers chosen by
Catalina Granda Carvajal, Banco de la República

  1. Extending social protection to informal economy workers: Lessons from the Key Indicators of Informality based on Individuals and their Household (KIIbIH) By Alexandre Kolev; Justina La; Thomas Manfredi
  2. Labor market turnover and inequality in Latin America By Menezes-Filho, Naercio; Narita, Renata
  3. Changing structural composition of the Informal Manufacturing Sector in India during 2011-16: An analysis of unit-level NSSO Data By Balaji, Arun M; Vijay, R
  4. Tax simplicity or simplicity of evasion? Evidence from self-employment taxes in France By Philippe Aghion; Ufuk Akcigit; Maxime Gravoueille; Matthieu Lequien; Stefanie Stantcheva
  5. Customary Land Conversion in African Cities By Pierre M. Picard; Harris Selod

  1. By: Alexandre Kolev; Justina La; Thomas Manfredi
    Abstract: This paper exploits the information available in the OECD Key Indicators of Informality based on Individuals and their Household (KIIBIH) to shed light on several elements that could help inform national strategies for the extension of social protection to workers in the informal economy. It provides an assessment of current social protection coverage of informal workers throughout a large sample of developing and emerging economies and proposes a statistical framework to examine country-specific data, upon which a strategy for extending social protection to informal workers could be articulated. While the paper does not intend to provide detailed country-level recommendations, it highlights a number of important findings and policy directions as regards the way to extend non-contributory and contributory schemes to informal workers.
    JEL: I31 I38 J46
    Date: 2023–11–09
  2. By: Menezes-Filho, Naercio; Narita, Renata
    Abstract: This paper describes the patterns of worker turnover in selected Latin American countries and their implications for wage inequality. It documents a higher positive annual wage growth rate for jobto-job changers compared to stayers, due to turnover capturing the immediate gains from search behavior in the short run. Younger workers benefit relatively more from the positive effects of jobto-job changes, as expected. We also show that transitions are relatively higher within the informal sector for most countries, and particularly so for workers without college education. Moreover, total job separations and transitions from formal into informal employment occur more often among low-skill and young individuals. Next, the paper analyzes wage growth by percentiles for all workers and job-to-job movers for each country over a more extended period. We find that jobto-job changes are inequality-reducing in the short run, consistent with search gains associated with turnover exhausting more rapidly for high-paid workers. In contrast, we find that human capital effects dominate the search effects in the long run, as human capital accumulates over time. Thus, long-run wage growth is lower for job changers than for stayers, so that, while in the short run the search effects tend to dominate those of human capital, in the long run the opposite occurs. As unskilled workers change jobs more frequently, this suggests that job changes are inequalityincreasing in the long run. A potential explanation for limited wage growth in Latin American economies may include high informality rates. Policies to reduce wage inequality should focus on improving the conditions for positive turnover towards better investment and, thus, higher-quality jobs.
    JEL: N0 R14 J01
    Date: 2023–09–01
  3. By: Balaji, Arun M; Vijay, R
    Abstract: In the context of an unprecedented decline in the manufacturing employment driven by the informal sector in the post-2010 period, the paper examines the structural compositional changes in the Informal Manufacturing Sector (IMS) in India, the largest employer within the manufacturing sector. Using enterprise-level data between 2010-11 and 2015-16, the paper finds major shifts in employment structures in IMS. Three trends need careful diagnosis. (1) There was tremendous growth in tiny enterprises, with a withdrawal of larger firms. (2) These tiny firms were overwhelmingly owned and operated by female entrepreneurs in rural areas. (3) These trends are more evident in the rural economy, which saw a withdrawal of family labour, and wage labour from the sector. A partial diagnosis lies in understanding the linkages between structural changes within IMS and the job loss nature of the economic growth which in turn has severely impacted the consumption demand.
    Keywords: informal sector, manufacturing, capitalist development, employment, employment crisis, petty production.
    JEL: E24 O14 O17
    Date: 2023
  4. By: Philippe Aghion; Ufuk Akcigit; Maxime Gravoueille; Matthieu Lequien; Stefanie Stantcheva
    Abstract: We exploit individual panel information from introducing of new and simpler tax regimes for the self-employed in France, in order to assess the extent to which individuals' shift towards the new regimes is driven by a quest for tax simplicity, and the extent to which the demand for tax simplicity is itself at least partly driven by tax evasion motives. We find evidence of a quest for tax simplicity from observing a significant amount of bunching at the eligibility thresholds for the simpler self-employment tax regimes and from the fact that bunching is increasing in the degree of simplicity of the self-employment regime. We also argue that tax evasion plays an important role in accounting for individuals' attraction towards simpler tax regimes. Finally, we quantitatively assess the importance of simplicity and evasion motives for choosing a simpler self-employment regime. More precisely, we combine bunching estimates and a structural model to jointly estimate the real income elasticities, the value of tax simplicity, and the evasion elasticity. We find that the parameters values which generate the best fit with the observed bunching across different tax brackets and years, imply noticeable preference for tax simplicity with a sizeable evasion elasticity behind it, and a negligible real income elasticity.
    Keywords: tax simplicity, simplicity of evasion, taxation of self-employment, France
    Date: 2023–05–05
  5. By: Pierre M. Picard (DEM, Université du Luxembourg); Harris Selod (The World Bank)
    Abstract: We propose an urban land use model to discuss the conversion of customary agricultural land to formal and informal residential land in a developing country city. Because customary land sales are insecure, migrant buyers face a risk of eviction, which affects land markets in non-trivial ways. Both tenure risk and asymmetric information cause the city extent and population to be too small. Empirical tests of the model for Bamako, Mali, confirm the existence of tenure insecurity and information asymmetry in the primary but not in the secondary land market, consistently with information revelation after initial sales by customary holders.
    Keywords: Urbanization, Land Markets, Property Rights, Land Tenure Formalization, Market Failure.
    JEL: O12 R14 P14
    Date: 2023

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