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Is informality bad? Evidence from Brazil, Mexico and South Africa
Bargain, Olivier; Kwenda, Prudence
The informal sector plays an important role in the functioning of labor markets in emerging economies. To characterize better this highly heterogeneous sector, we conduct a distributional analysis of the earnings gap between informal and formal employment in Brazil, Mexico and South Africa, distinguishing between dependent and independent workers. For each country, we use rich panel data to estimate fi…xed effects quantile regressions to control for (time-invariant) unobserved heterogeneity. The dual nature of the informal sector emerges from our results. In the high-tier segment, self-employed workers receive a signi…cant earnings premium that may compensate the bene…fits obtained in formal jobs. In the lower end of the earnings distribution, both informal wage earners and independent (own account) workers face signi…cant earnings penalties vis-à-vis the formal sector. Yet the dual structure is not balanced in the same way in all three countries. Most of the self-employment carries a premium in Mexico. In contrast, the upper-tier segment is marginal in South Africa, and informal workers, both dependent and independent, form a largely penalized group. More consistent with the competitive view, earnings differentials are small at all levels in Brazil. Not applicable
Keyword(s): Self-employed; Salary work; Informal sector; Earnings differential; Quantile regression; Fixed effects mode; J21; J23; J24; J31; O17; Labor market--Brazil; Labor market--Mexico; Labor market--South Africa; Informal sector (Economics); Wage differentials
Publication Date:
Type: Working paper
Peer-Reviewed: Unknown
Language(s): English
Institution: University College Dublin
Publisher(s): University College Dublin. School of Economics
File Format(s): other; application/pdf
First Indexed: 2012-08-25 05:19:11 Last Updated: 2018-10-11 15:36:14