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on Informal and Underground Economics |
| By: | Ellora Derenoncourt; Francois Gerard; Lorenzo Lagos; Claire Montialoux |
| Abstract: | How do minimum wages affect informality? We study the near-doubling of the real minimum wage from 2000 to 2009 in Brazil, where 46% of the workforce is informal. Using labor force surveys covering the informal sector, we show the minimum wage exhibits near full passthrough to informal employees working in formal firms, about half of all informal employees. The formal-to-informal reallocation elasticity with respect to the formal wage is small: -0.28. Our findings illustrate how minimum wages can positively affect living standards for workers thought beyond the reach of labor law, a sizable share of the workforce in developing economies. |
| Keywords: | Minimum wage; informality; labor demand; public policy |
| JEL: | J23 J46 J88 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:crm:wpaper:2598 |
| By: | César Carrera (Banco Central de Reserva del Perú); Marko Razzo (Banco Central de Reserva del Perú) |
| Abstract: | This paper examines how labor-market informality alters the estimation and policy interpretation of the Non-Accelerating Inflation Rate of Unemployment (NAIRU) in an emerging-market context. Using quarterly Peruvian data from 2007 to 2024, we estimate a time-varying parameter unobserved-components model with stochastic volatility following Chan, Koop, and Potter (2016). Bayesian MCMC techniques jointly recover trend inflation, the NAIRU, and the Phillips-curve slope under two alternative measures of slack: the standard unemployment rate and an extended measure incorporating informal workers. The conventional specification implies a rising NAIRU and persistent inflationary pressure. In contrast, the informality-adjusted NAIRU declines, and the Phillips-curve slope flattens, indicating that informal employment absorbs slack and dampens inflationary dynamics. These results suggest that ignoring informality overstates inflation risks and the power of monetary policy, with significant implications for inflation-targeting frameworks in economies with large informal sectors. |
| Keywords: | NAIRU, Informal employment, Phillips curve, Monetary policy, Inflation dynamics, Emerging markets, State-space model, Bayesian estimation |
| JEL: | C11 C32 E24 E31 E32 E52 O17 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:rbp:wpaper:dt-2026-001 |
| By: | Francesco Amodio; Emanuele Brancati; Peter Brummund; Nicolás de Roux; Michele Di Maio |
| Abstract: | We estimate the labor market power of manufacturing firms in 82 low- and middle-income countries using over 13, 000 observations from a harmonized global dataset. Wage markdowns-the gap between a worker's marginal revenue product and their wage-vary widely across countries and show a robust hump-shaped association with the share of self-employed workers. We interpret this pattern using a simple oligopsonistic labor market model with frictions, in which self-employment and wage markdowns are jointly determined, and unemployment protection dictates whether their relationship is positive or negative. Consistent with the model, wage markdowns rise with self-employment in countries with such protection, but fall in those without it. These findings underscore how labor market frictions and regulations shape the link between self-employment and labor market power across countries. |
| Keywords: | labor market power, self-employment, development |
| JEL: | J20 J30 J42 L11 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:crm:wpaper:2566 |
| By: | Pascuel Plotkin |
| Abstract: | This paper studies how firm adoption of digital technologies reshapes labor demand and worker earnings. Linking administrative employer-employee records to restaurants and workers from a major delivery platform and using a matched event-study, I show that adopting restaurants substitute in-house labor hours one-for-one with outsourced platform-worker hours. Earnings losses for incumbent workers are modest because displaced workers reallocate to new formal-sector jobs. Exposed non-adopting restaurants are more likely to close, and their workers experience larger losses. I quantify earnings effects across restaurant and platform workers, showing how platform adoption redistributes earnings across workers and creates income outside traditional restaurant employment. |
| Keywords: | Alternative work arrangements, gig economy, technological change, outsourcing, displacement, informality |
| JEL: | J23 J31 J46 O33 L86 J63 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:crm:wpaper:26067 |
| By: | Caitlin Brown; Denni Tommasi |
| Abstract: | We study quality upgrading in informal street food markets - where food safety is a credence attribute and transactions are frequent, low-value, and weakly regulated - using two linked experiments with consumers and vendors in Kolkata, India. We firstly define and measure upgrading through a context-specific framework based on observable sanitation-related inputs and food-safety practices. Using a discrete choice experiment with consumers, we document a large willingness to pay for visibly cleaner kiosks and more hygienic vendors, highlighting the central role of observable signals. We then conduct a clustered randomized trial with vendors that subsidizes sanitation infrastructure and hygiene supplies, and cross-randomizes on-site training. The intervention increases the use of provided equipment and improves observed hygiene during the subsidy period, but effects fade after support ends and training adds little. Business outcomes improve through higher customer volume yielding increased profits, yet prices do not change. Moreover, untreated vendors near treated peers experience worse outcomes, consistent with demand reallocation and positional returns rather than market expansion. Follow-up surveys and qualitative evidence point to binding constraints from informal price coordination norms and a precarious operating environment, consistent with a moral hazard mechanism in which cleanliness is difficult to verify and not privately profitable to sustain. |
| Keywords: | Quality upgrading; street food; informal markets; food safety; randomized experiment; consumer preferences; hygiene practices; moral hazard; subsidy effectiveness; signaling; developing countries. |
| JEL: | D82 I18 L15 L31 O12 O33 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:crm:wpaper:25163 |
| By: | Lukas Delgado-Prieto |
| Abstract: | The labor market effects of immigration depend on how firms adjust, yet this aspect remains unexplored in developing countries. This paper studies the mass influx of Venezuelan migrants into Colombia using employer-employee data. As immigrants concentrate in informal employment, formal employment for minimum-wage natives falls, reflecting their substitutability with lower-cost informal workers. The negative effects are stronger in small formal firms, which rely more on informality. A machine learning analysis shows that firm-level factors explain more of the heterogeneity in worker-level impacts. These findings highlight that informality amplifies firms' role in shaping workers' immigration adjustments. |
| Keywords: | Immigration, Minimum wages, Formal labor markets, Causal forest |
| JEL: | F22 O15 O17 R23 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:crm:wpaper:26041 |
| By: | Ahmet Gulek |
| Abstract: | I study the effects of Syrian refugees, who are denied work permits and thus can only work informally, on Turkish firms and workers. Using travel distance as an instrument for refugee location, I show that low-skill natives lose both informal and formal salaried jobs. I document two mechanisms: formal firms reduce their formal labor demand and new firms do not enter the formal economy. Estimates imply an elasticity of substitution of 10 between formal and informal workers. Counterfactual exercises predict that granting refugees work permits would have created up to 120, 000 formal jobs in the economy through higher informal wages. |
| Keywords: | Informality, Immigration, Refugee crises, Work permits |
| JEL: | D22 J15 J21 J46 J61 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:crm:wpaper:2584 |
| By: | Roukiatou Nikiema; Pam Zahonogo; Romain Houssa |
| Abstract: | This paper examines the role of institutional factors in shaping taxpayer behaviour, using survey data from approximately 70, 000 individuals across 29 Sub-Saharan African countries in 2011 and 2016. The results show that individuals are more likely to comply with tax obligations when they perceive greater difficulties in evading taxes, have confidence in the tax administration, and view it as less corrupt. Compliance is also higher when respondents perceive higher-quality public goods and services and do not perceive ethnic discrimination in government policies. We present heterogeneous analysis based on the natural resource abundance status of respondents' countries. |
| Keywords: | taxpayer behaviour, tax compliance, institutions, Sub-Saharan Africa |
| JEL: | H3 K42 O43 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12621 |
| By: | Alessandra Foresta; Rigissa Megalokonomou; Michael Vlassopoulos |
| Abstract: | This paper investigates whether crisis narratives affect how the judiciary handles tax evasion. We study this question in the context of the Greek debt crisis, in which tax evasion was publicly blamed for the fiscal collapse, and judges themselves experienced substantial salary cuts as part of the resulting austerity programme. Using a novel dataset compiled from Greek Supreme Court rulings between 2006 and 2014, we compare tax evasion appeals with appeals in other serious crimes not directly related to the fiscal crisis, such as homicide and rape, in a difference-in-differences framework. We find that the probability that the Supreme Court rejects tax-evasion appeals increases by about 25 percentage points relative to these control offences after January 2010-about a 43% increase relative to the pre-crisis baseline. Effects are larger in months with greater public attention to tax evasion, as measured by Google Trends, suggesting a role for salience. Our findings suggest that crisis narratives, particularly when coupled with personal economic shocks to judges, can influence the judicial treatment of tax offences. |
| Keywords: | economic narratives, judicial decision-making, tax evasion, financial crisis, legal institutions, difference-in-differences |
| JEL: | D91 P16 K40 K42 H26 Z13 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:crm:wpaper:26088 |