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on Informal and Underground Economics |
| By: | Emily Breza; Supreet Kaur |
| Abstract: | The process of development is accompanied by marked changes in the structure of the labor market. We lay out a broad set of stylized features that distinguish developing country labor markets from those in richer countries. We organize our review around one particularly striking difference: in poor countries, working age individuals are employed in wage work only 20-50% of the time. There is evidence that this low wage employment reflects high levels of involuntary unemployment (often masked by self-employment), along with frictions such as wage rigidity, market power, and search and matching frictions. At the same time, there is growing documentation that workers prefer self-employment or unemployment to many of the wage jobs that are available to them, especially low-skill work in the formal sector. We offer evidence on several ways in which poverty itself can dampen labor supply, so that "low" labor supply may itself be an outcome of under-development. Throughout our review, we highlight how three core aspects of poverty—missing markets, the importance of social ties, and institutional irregularity—are important for understanding why developing country labor markets may behave differently from those in richer settings. This has relevance for understanding how labor markets change in response to, and help facilitate, the process of development. |
| JEL: | E24 J22 J23 J31 J63 J64 O15 O17 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33908 |
| By: | Noelia Bernal; Sebastian Galiani; Oswaldo Molina |
| Abstract: | We conducted a large field experiment in Peru on informal workers and studied whether offering them a matching contribution raise participation and contributions in their Individual Retirement Accounts. We had three groups: a control group receiving no match, and two treatments groups receiving 50 and 100 percent match, respectively. Additionally, due to the time span, we can also analyze the difference responses between pre and during Covid-19. The results were as follows. First, the match incentive increases participation. Workers in the 50 and 100 percent match groups show participation rates of 5.2 and 6.5 p.p. higher than workers in the control group, respectively. The participation effect is also present pre Covid-19 and disappears during it. Second, the 100 percent match incentive was the only effective in increasing savings among all individuals (1.4 p.p.), pre (2.3 p.p.) and during Covid-19 (0.97 p.p.). This effect still presents in LATE specification with higher p.p. Third, 100% match was again the only effective to make contribute more than once, in the full sample (1.2 p.p.), and pre Covid-19 (2.7 p.p.), including LATE specification (full sample – 5.6 p.p.; pre Covid-19 – 8.2p.p.). Fourth the 50 percent match is not effective in raising contribution in any specification. |
| JEL: | J49 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33925 |
| By: | Musayir, Arlan (Department for Employment UK); Arabsheibani, Reza (London School of Economics) |
| Abstract: | This paper investigates the causal impact of childbirth on women’s likelihood of informal employment in Russia using twenty years of RLMS. We apply an event study framework following Kleven et al. (2019) to quantify child penalties in labour market outcomes and whether women are more likely to find themselves working informally following the birth of their first child. We find that childbirth significantly increases the probability of informal employment for women. The rise in informality is concentrated in only the first year after childbirth. For first-time mothers this transition is largely involuntary. Our findings align with recent evidence on Russia’s relatively integrated but segmented informal labour market (Bargain et al. 2021). |
| Keywords: | informality, female employment, fertility |
| JEL: | J13 J16 J46 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17916 |
| By: | Md Mahadi Hasan |
| Abstract: | I develop a continuous-time model in which an incumbent batch-service provider faces stochastic passenger arrivals and must decide when to dispatch under the threat of customer defection to a faster entrant. The incumbent's problem is formalized as a trade-off between departure frequency and load maximization, with the option to accept mid-route pickups. I characterize the equilibrium dispatch strategy and show that increased competitive pressure strictly reduces the feasible departure threshold, leading to more frequent departures with smaller passenger loads. Longer travel times tend to raise the unconstrained optimal threshold, but realized dispatch behavior also depends on passenger tolerance for delay. Endogenizing demand by letting the arrival rate fall with expected waiting time yields an interior optimum, rationalizing why incumbents now (i) depart partially full and (ii) accept mid-route riders. Comparative statics show that the optimal threshold tends to increase with travel time under a mild regularity condition and decreases with competitive intensity. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.20554 |
| By: | Hoffmann, Vivian; Murphy, Mike; Kariuki, Sarah |
| Abstract: | Unsafe food imposes significant health and productivity burdens on developing countries. We test the impact of a simple information intervention through which low-income urban consumers in Kenya were provided information about the likelihood that maize flour from the formal and informal sector violated a food safety standard. We find a 42 percent increase in the share of households consuming the similarly priced, lower risk formal sector flour type at follow-up in the treatment group relative to the control group, from a base of 33 percent. The intervention was equally effective for households earning below and above the sample median income level. Our results demonstrate the potential for low-cost interventions to increase the salience of food safety as a product attribute in informal markets or where regulatory enforcement is weak. |
| Keywords: | consumers; food safety; health; households; productivity |
| Date: | 2024–12–20 |
| URL: | https://d.repec.org/n?u=RePEc:fpr:gsspwp:168191 |
| By: | Naritomi, Joana; Nyamdavaa, Tsogsag; Campbell, Stephanie |
| Abstract: | Over the past decade, governments worldwide have introduced incentive programs - often in the form of lottery prizes - to encourage consumers to help combat tax evasion. While similar programs date back to the 1950s, the rapid expansion of Value Added Tax (VAT) systems in developing countries, combined with the Information Technology revolution, has reshaped the tax enforcement policy toolbox, leading to a recent surge in enforcement policies through consumer incentives. This paper reviews the rationale behind these policies, documents variations in their design, and examines the conditions under which they can enhance compliance and raise revenue. |
| Keywords: | tax compliance; VAT; tax enforcement; consumer rewards; lotteries |
| JEL: | H25 H26 E26 |
| Date: | 2025–05–16 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:127223 |