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on Informal and Underground Economics |
| By: | Eloiza Regina Ferreira de Almeida; Veneziano C. Araujo; Solange Gonçalves |
| Abstract: | Few studies analyze how the urban wage premium is different for informal workers, and their results are controversial. This paper aims to clarify the reason for this mixed evidence, evaluating how workers’ heterogeneity in terms of labor contract - formal or informal - and occupational position - as wage-earner or self-employed - may impact the magnitude and direction of the UWP estimates. We address this investigation by analyzing the Brazilian labor market using the PNADC (IBGE) longitudinal database for the period from 2012 to 2019. The results show that formal workers present an increasing UWP according to the urban scale, as seen in many previous studies for developed or developing countries. In its turn, informal workers UWP is double the formal ones but is reduced in denser areas. Thus, our study shows previous UWP studies that focus only on formal workers could underestimate the magnitude of this premium for the whole labor market and that disregarding the groups of workers hides the complexity inherent of their insertion in the large urban labor markets. Also, different estimations highlight some mechanisms on the UWP explanation, such as sorting and matching. These results add new insights to the UWP in Brazil, signaling the importance of analyzing the whole labor market. |
| Keywords: | Urban wage premium; Informality; Workers' heterogeneity |
| JEL: | R23 J46 J31 |
| Date: | 2024–11–11 |
| URL: | https://d.repec.org/n?u=RePEc:spa:wpaper:2024wpecon25 |
| By: | Burgstaller, Lilith; Pfeil, Katharina |
| Abstract: | Does whistleblowing deter rule violations when such violations are believed to be common? We examine this question in an online experiment about collaborative tax evasion. We vary whether subjects can blow the whistle on their partner in crime and introduce a high-evasion environment by framing the social norm such that evasion is expected to be common. Our findings show that giving partners in crime the option to blow the whistle on their partner does not significantly deter collaborative tax evasion. Collaborative tax evasion significantly increases in a high-evasion environment compared to an unspecified norm environment, even when whistleblowing is possible. This finding underlines that the norm environment is crucial for evasion and corroborates that whistleblowing is ineffective when both partners benefit from collaborative evasion. We offer several explanations for these findings. |
| Keywords: | Collaborative Tax Evasion, Social Norm, Peer Reporting, Whistleblowing, Online Experiment |
| JEL: | H26 E26 O17 D91 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:aluord:305289 |
| By: | Canavire Bacarreza, Gustavo J. (World Bank); Yanez, Gunnar Poppe (Johns Hopkins University) |
| Abstract: | Developing countries face significant challenges in increasing women's labor force participation and improving job quality, partly due to the substantial presence of the informal sector. This paper examines the case of Bolivia, which has the highest level of informality in Latin America. We empirically investigate whether the expansion of children's access to education in Bolivia provides an additional explanation for the reduction in female participation in the informal sector, as children attending school would require less parental supervision. Using a structural model in which mothers decide to participate in formal markets at a cost inversely related to the likelihood of their children being enrolled in school, we find that the rise in primary school enrollment in Bolivia explains up to 40% of the decline in female workers under age 40 in informal markets. Our findings contribute to the growing body of evidence on the positive impact of children's access to education on women's labor market outcomes in developing countries. |
| Keywords: | Bolivia, female labor force participation, structural estimation |
| JEL: | C62 D13 J12 J13 J16 J21 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17429 |
| By: | Fanfani, Bernardo (University of Turin); Passerini, Filippo (Catholic University Milan) |
| Abstract: | This study analyses the impact of vouchers, an Italian alternative work arrangement, on earnings of atypical workers. We investigate whether this form of very flexible casual work substitutes for income from more standard labor contracts and from employment insurance programs. We rely on panel data estimators and a difference-in-differences specification that exploits a plausibly exogenous variation in the use of vouchers. Results show that around 50% of reductions in earnings from vouchers can be compensated by an increase in income derived from standard labor contracts and, to a much lower extent, by higher income from employment insurance. However, when considering a sub-sample of intensive users, only around 10% of losses in earnings from vouchers are compensated by other income sources. Thus, policies aiming at restricting or abolishing alternative work arrangements should be complemented by targeted interventions, particularly on intensive users, in order to mitigate the short-run earning losses of atypical workers. |
| Keywords: | alternative work arrangements, policy evaluation, labor supply, cross-income elasticity, sample selection, difference-in-differences, event-study |
| JEL: | J24 J22 D12 C13 C21 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17399 |
| By: | Kishan Shah (Center for International Development at Harvard University); Federico Sturzenegger |
| Abstract: | South Africa’s labor market exhibits a unique equilibrium with one of the highest unemployment rates in the world and yet a low level of informal employment. The unemployment rate has remained high and persistent over recent decades, in spite of the formal demise of the apartheid regime and subsequent transition to democracy in 1994. This paper uses a matching model of the labor market to argue that spatial considerations combined with low productivity of informal work may be responsible for such an outcome. Spatial dispersion inherited from the apartheid regime thins the labor market, creating exclusion and perpetuating spatial segregation. In most developing countries, the result would be higher employment in informal or own account employment. However, with low productivity in the informal sector, the high rate of exclusion shows itself in higher unemployment rates instead. Transportation costs and housing deregulation may become key factors in improving the working of the labor market in South Africa especially if it is not possible to raise informal productivity. |
| Keywords: | South Africa, labor markets |
| Date: | 2023–01 |
| URL: | https://d.repec.org/n?u=RePEc:glh:wpfacu:195 |
| By: | Anne Brockmeyer; Francisco Garfias; Juan Carlos Suárez Serrato |
| Abstract: | Can the provision of public goods strengthen the fiscal capacity of governments in developing countries and move them toward an equilibrium of widespread tax compliance? We present evidence of the impact of local public infrastructure on tax compliance, leveraging a large public investment experiment and individual property tax records from Mexico City. Despite the salience and large effects of these investments on access to infrastructure, property values, and local economic development, we find no changes in property tax compliance and can rule out even small increases. These null effects persist even when taxpayers are reminded about the tax-benefit link. |
| Keywords: | tax compliance, public goods, infrastructure, development |
| JEL: | H71 O23 H41 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11270 |
| By: | Benjamin A. Olken; Rema Hanna; Phitawat Poonpolkul; Nada Wasi |
| Abstract: | Many government social insurance policies have low take-up. To understand whether this is due to administrative barriers, information, or low valuation of the insurance, we study an unusual policy experiment in Thailand that offered a very large lump-sum incentive for informal workers in selected provinces to enroll in a voluntary workers' social insurance program. Using administrative data, we find that the temporary enrollment incentive increased coverage by 67 percentage points—from 6 percent of informal workers to 73 percent -- within just a few months. However, 12 months later, only 13 percent of these new enrollees remained in the scheme, much lower than the retention rate of those who joined absent the incentive. By using new enrollees' choices among insurance tiers to back out a revealed valuation of insurance, we find that those who were induced to enroll by the incentives value insurance less than those who enrolled without. Combined, the results suggest that low social insurance enrollment may be the result of low ex-ante valuations of the insurance, rather than administrative barriers. |
| JEL: | I38 O15 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33096 |
| By: | Gomez, Wilman (Universidad de Antioquia); Castrillon, Cristian (Universidad de Antioquia); Montoya, Jaime (Universidad de Antioquia) |
| Abstract: | This work shows loss aversion as the transmission mechanism by which the agents go to the informal market to dampen the loss of wellbeing suffered by families as they go through a recession. Although the aim of this work is not to determine the well-known causes of informality, it assumes it as a structural fact in the long run and treats the increases of labor and entrepreneurial informality as a reaction to a rainy day in the short run that offers income alternatives to those who were expulsed from the formal world, while waiting for an economic recovering which reconnect them to the formal world. The analytical structure of the model built in this work allows not only capturing the interaction between formal and informal market, but also the interaction between productive sectors in both worlds. The parameters of the model are calibrated and estimated from data for the Colombian economy taken from national accounts and GEIH. Calibration results allow to know the size of the informal economy by means of variables as physical capital, consumption, investment, wages, GDP as well as their analogs measurements for the formal world. Impulse response simulations showed two interesting behaviors: i) negative shocks on the formal sector (a recession) generate a boom (by means of investment and labor resource reallocation) in the formal world, but given its small size compared to the formal sector, it cannot completely dampen the fall in the economy as a whole; ii) as the economy is positively shocked in the informal sector, a boom is generated in consumption, labor, investment and income generation in the sector, but generating a detriment in the formal sector, again as a result of factor reallocation. Resumen: Este trabajo presenta la aversión a la pérdida como el mecanismo de transmisión mediante el cual los agentes recuren al mundo informal para amortiguar la perdida de bienestar que sufren las familias durante una recesión. Si bien no busca determinar las causas ya bien conocidas de la informalidad, la asume como un hecho estructural de largo plazo y trata los aumentos de la informalidad laboral y productiva como una reacción de racional de escampadero de corto plazo que brinda alternativas de ingreso para quienes son expulsados del mundo formal, en espera de una recuperación económica que los reconecte nuevamente con el mundo formal. La estructura analítica del modelo construido en este trabajo permite no solo capturar la interacción entre el mercado laboral formal y el informal, sino también la interacción ente los sectores productivos de ambos mundos. Los parámetros del modelo se calibran con datos para la economía colombiana tomados de cuentas nacionales y de GEIH. Los resultados de la calibración permiten conocer el tamaño de la economía informal en variables como capital, consumo, inversión, salarios, PIB, así como sus mediciones análogas en el mundo formal. Los ejercicios de impulso respuesta mostraron dos comportamientos interesantes: i) los choques negativos sobre el mundo formal (una recesión) generan un auge (vía reasignación de recursos de inversión y trabajo) en el mundo informal, pero dado que su tamaño es sustancialmente menor con respecto al formal, no logra amortiguar completamente la caída de la economía en su conjunto; ii) cuando la economía recibe un choque positivo en el sector informal, se genera un auge de consumo, trabajo, inversión y generación de ingreso en este sector, pero a costa del detrimento del sector formal, de nuevo resultado de una reasignación factorial. |
| Keywords: | Informality; business cycles; loss aversion; cycle smoothing; factor reallocation; Bayesian estimation; informal PIB. Palabras clave: Informalidad; ciclos económicos; aversión a la pérdida; suavización del ciclo; reasignación factorial; estimación bayesiana; PIB informal |
| JEL: | E26 E32 |
| Date: | 2024–10–05 |
| URL: | https://d.repec.org/n?u=RePEc:col:000196:000100 |