Job search and mobility in developing countries. Theory and policy implications

A labor market model is developed in which the formal sector is characterized by search frictions whereas the informal sector is competitive. We show that there exists a unique steady-state equilibrium in this dual economy. We then consider different policies financed by a tax on firms' profits. We find that reducing the unemployment benefit or the firms' entry cost in the formal sector induces higher job creation and formal employment, reduces the size of the informal sector but has an ambiguous effect on wages. We also find that an employment/wage subsidy policy and a hiring subsidy policy have different implications. In particular, the former increases the size of the informal sector while the latter decreases it.     

Are labor markets segmented in developing countries? A semiparametric approach

We test the hypothesis that observably similar workers earn higher wages in the formal sector than in the informal sector in developing nations. Using data from Argentina's household survey and various definitions of informal employment, we find that on average, formal wages are higher than informal wages. Parametric tests suggest that a formal premium remains after controlling for individual and establishment characteristics. However, this approach suffers from several econometric problems, which we address with semiparametric methods. The resulting formal premium estimates prove either small and insignificant, or negative. Neither do we find significant differences in measures of job satisfaction between the two sectors. We invoke these results to question the mainstream view that labor markets are segmented along formal/informal lines in developing nations such as Argentina.     

RECENT TRENDS IN JOB TRAINING

This paper analyzes new data on job qualifications and training. Between 1983 and 1991, the share of workers reporting skill-improvement training on their jobs increased as did the wage premium for this training. Even in 1991, however, 58 percent of all workers reported no training on their jobs, and 44 percent reported needing no special qualifications to obtain their jobs. Training rates are especially low for young and less-educated workers. Skill demands appear to have shifted toward general and cognitive skills—best taught in formal training programs and schools—and away from specific and manual skills acquired through informal on-the-job training .     

FEATURES OF THE HIDDEN ECONOMY IN THE NETHERLANDS

This paper presents survey results on the size and structure of the hidden labour market in The Netherlands. According to the results total income from hidden work is at least 1 percent of national income. The hidden income is shared by more than one million participants (nearly 12 percent of the corresponding population). This result is lower than various other estimates of the magnitude of the hidden economy. Some definitional and methodological issues are discussed in order to explain the difference from the other estimates.
The most notable results of the survey refer to the structure of the hidden labour market. At one end of this market are people with a high wage rate, working relatively few hours. They have the characteristics which given them a favourable position in the formal labour market. At the other end are people with low hidden wages, who work more hours. They have difficulty in finding a formal job. The income from hidden labour is distributed in very much the same way as income from formal activities. There is no evidence that the hidden labour market compensates those who are worse off in the formal economy.     

Opening the Pandora's box? Trade openness and informal sector growth

This article constructs a labour transition model combining the features of job loss and job creation in the formal sector of an economy. The theoretical model examines the impact of trade liberalization on net job transition from formal to informal sector. In the light of our model we establish certain pre-conditions based on simulations under which trade liberalization is accompanied by rising informal sector. The model outcome conforms to the empirical evidence of rising informality with openness which we find in 18 Central Eastern European and Former Soviet Union countries.     

Informal work networks

Abstract We present a model of time allocation between formal and informal labour supply, where workers learn of informal job opportunities from their peers. In addition to formal income taxation and enforcement, individuals’ labour supply decisions depend on the number of their peers with informal jobs and the strength of social ties. Workers allocate more time to informal activities when tax enforcement is lax and job information transmission is good. More connected social networks (e.g., wheel, complete) feature lower average income but higher average utility than poorly connected social networks (e.g., star, empty). Average income may be non‐monotonic in tax enforcement.     

What keeps pensioners at work in Russia? Evidence from Household Panel Data

The proportion of working pensioners in Russia is high relative to what is usually observed in several Eastern and Western European countries. In this paper, we present an analysis of the determinants of pensioner employment, using panel data from the on-going Russian Longitudinal Monitoring Survey for the period 1994-99. Given the sharp deterioration in the safety net in recent years, a particular attempt is made to assess the role of inadequate pension benefits, along with other individual, household, and local labour market characteristics, in driving up the employment rate of older people during transition. Both the probability of holding a job and the number of hours worked are modeled. The microeconometric analysis confirms the role that family income and access to alternative coping mechanisms such as subsistence farming play in pensioner employment for women, but also stresses for both men and women the importance of age, education, and health status. Finally, the results show a low sensitivity of pensioner employment to pension arrears and pension benefits, indicating that even the full payment of benefits may be too low to significantly affect the decision to remain in employment.
JEL classification: C33, H55, J14, J21, P36.     

Not just a work permit: EU citizenship and the consumption behaviour of documented and undocumented immigrants

This paper explores the impact of the 2007 European Union enlargement on the consumption behaviour of immigrant households. Using data from a unique Italian survey and a difference-in-differences approach, we find that the enlargement induced a significant consumption increase for the immigrant households from new member states both in the short and in the medium run. This enlargement effect cannot be attributed to the mere legalization as it concerns both undocumented and documented immigrants, albeit through different channels. Detailed information on immigrants’ legal status (undocumented/documented) and sector of employment (informal/formal) allows us to shed light on the exact mechanisms. Following the enlargement, previously undocumented immigrants experienced an increase in the labour income by moving from the informal towards the formal economy, whereas immigrants who were already working legally in Italy benefited from the increased probability of getting a permanent contract. Enhanced employment stability in turn reduced the uncertainty about future labour income leading to an increase in documented immigrants’ consumption expenditure.     

Oil price shock and informal workers in dual labor markets

This paper examines the impact of a rise in oil prices on the wages of workers in the unorganized sector of a developing economy. The model economy is comprised of two non-traded transport sectors, formal and informal, along with other sectors. The main results that we obtain are as follows. The informal transport sector contracts when fuel price rises and lowers the real income of the informal workers. The per-unit return to land rises, and the factor readjustments even raise the output of other sectors in the economy. We also show why inclusion of non-passenger transport services does not alter the main outcomes of the model.     

Labor and india's economic reforms

Before liberalization in 1991, India had developed exceptionally complex labor regulations which strengthened the bargaining power of unions and increased job security in the formal economy, at the cost of employment. Deregulation and privatization can be expected to strengthen competition, accelerate productivity growth, narrow gaps between formal and informal labor markets outcomes, and weaken union power. Is this happening in post-1991 India? Because India liberalized its economy so recently, and so gradually, it is too early to tell. Key areas of the economy continue to be highly regulated, including labor markets. Yet, there are signs that industrial relations are changing. Increased competition in product markets and dissipation of rents are eroding the protection labor regulations once afforded workers in formal labor markets. In a more competitive environment, the same labor regulations that once increased job security, might expose workers to greater risks.     

Economic reform and informal wage—a general equilibrium analysis

We attempt to trace the consequences of liberal economic policies on informal wage in a general equilibrium model with formal informal labor markets, wage-differential, vertical linkage and restricted capital movement. In particular, we show that the informal wage, representing income for a vast segment of unskilled labor may actually increase even if more people are employed in the informal segment. This also confirms that a contraction in the formal sector employment and the consequent expansion in the informal segment do not necessarily imply impoverishment of the existing set of informal workers.     

THE SHADOW ECONOMY: ILLICIT WORK AND HOUSEHOLD PRODUCTION: A MICROANALYSIS OF WEST GERMANY

This microanalysis of the shadow economy is on informal family income achieving strategies. In particular we analyze both sexes' paid illicit work as well as unpaid work in household production based on the representative West German Sfb3–Secondary Occupation Survey 1984. We estimate the influence of various socioeconomic variables including a legal occupation. As a result, illicit work and household production "Do-It-Yourself" activities are important informal family income achieving strategies. The respective regional state of the formal economy or one's own activities in social networks is of greater importance for informal economic activities than an individual income from formal economic activities.     

Sectoral Selection and Informality: a Nicaraguan Case Study

Using microdata from the 1998 and 1993 Nicaraguan Living Standards Measurement Survey, this paper analyzes the relative size and attractiveness of formal and informal sector employment. Switching regression models of the formal/informal sector employment choice indicate that education across years and gender are the primary determinants of formal sector participation. Furthermore, the formal sector is characterized by positive selection. The results for the informal sector are less definitive, but are also suggestive of positive selection. These findings imply that the informal and formal sectors in Nicaragua contribute positively to the overall economy by attracting those individuals best suited for (in)formal sector employment.     

论我国劳动关系契约化中的正式约束与非正式约束

由于我国社会习俗、文化、价值观等非正式约束与正式约束的不匹配,导致《劳动合同法》的实施效果不尽如人意,这些非正式约束的限制主要表现在:关系经济降低了正式劳动合约的作用;集体主义制约了正式契约关系的拓展;等级制不利于建立平等的劳动契约关系;人治不利于劳动契约按法律的手段有效实施。正式制度只有在与非正式制度相容的情况下才能发挥作用,我国劳动关系契约化中正式约束与非正式约束不相适应会带来一些问题,主要表现在:它将影响我国社会从身份到契约的进程;影响我国《劳动合同法》的实施及其效果;它使劳动合同的作用难以发挥。     

Informality,public employment and employment protection in developing countries

This paper proposes an equilibrium matching model for developing countries’ labor markets where the interaction between public, formal private and informal private sectors are taken into account. Theoretical analysis shows that gains from reforms aiming at liberalizing formal labor markets can be annulled by shifts in the public sector employment and wage policies. Since the public sector accounts for a substantial share of employment in developing countries, this approach is crucial to understand the main labor market outcomes of such economies. Wages offered by the public sector increase the outside option value of the workers during the bargaining processes in the formal and informal sectors. It becomes more profitable for workers to search on-the-job, in order to move to these more attractive and more stable types of jobs. The public sector therefore acts as an additional tax for the formal private firms. Using data on workers’ flows from Egypt, we show empirically and theoretically that the liberalization of labor markets plays against informal employment by increasing the profitability, and hence job creations, of formal jobs. The latter effect is however dampened or even sometimes nullified by the increase of the offered wages in the public sector observed at the same time.     

Transitions across labor market states including formal/informal division in Egypt

This study examines the worker transitions across labor market states including formal/informal division using panel data of 2006 to 2012 from Egypt. We generate a broad set of facts about labor market dynamics in Egypt. We first develop transition probabilities by gender across different labor market states including formal/informal sectors utilizing Markov transition processes. Government employment is the most persistent labor market state for both men and women and the out of labor force is the second most persistent labor market state for women. Unemployment is the most mobile labor market state. Informal private wage work and self‐employed–agriculture are also relatively mobile labor market states. We next identify the effects of individual, household and job characteristics on different mobility patterns by estimating multinomial logit models. We find that gender, age, education, experience, and several sectors of economic activity are associated with the transition probabilities between the labor market states considered such as formal wage, informal wage, self‐employment, unemployment, government employment, and out of labor market. Education, in particular, university degree or above is noted to play a vital role in the probability of transitions across several labor market states.     

Are Minimum Wages to Blame for Informality in the Labour Market?

The paper estimates the impact of the minimum wage on formal and informal employment in a developing country combining the use of aggregate time series data with modern time-series methods. The analysis is carried out for the case of Brazil over the period 1982–2002. The hypothesis under investigation is that minimum wage rises price workers out of the formal labour market and into the informal sector. The modelling strategy involves the estimation of the long-run structure as well as the short-term dynamics of employment equations in which the minimum wage enters as an explanatory variable.JEL codes: J23 J51 C32     

Tax Reform,Structural Unemployment and the Environment

The effects of environmental tax reform, i.e., using the proceeds of a higher energy tax rate to lower the labour tax rate, on wage formation, employment and environmental quality are analysed in the context of a small open economy with structural unemployment caused by hiring costs. We find that such a reform may boost employment if it shifts the tax burden away from workers towards those without employment in the formal sector. Environmental tax reform succeeds in shifting the tax burden away from workers in the formal sector if higher energy taxes reduce earnings in the informal sector by reducing labour productivity.     

Informal employment relationships and the labor market: Is there segmentation in Ukraine?

One of the most important factors that determine individuals’ quality of life and wellbeing is their position in the labor market and the type of jobs that they hold. When workers are rationed out of the formal segment of the labor market against their will, i.e., the labor market is segmented, their quality of life is limited, and their wellbeing is reduced. When they can freely choose between a formal or informal employment relationship, i.e., the labor market is integrated, their wellbeing can reach high levels even in the presence of informal employment. We, therefore, test whether the Ukrainian labor market is segmented along the formal-informal divide, slicing the data by gender and age. The analysis that we perform consist in the analysis of short-term and medium-term transitions between five employment states, unemployment and inactivity. We also analyze wage gaps of mean hourly earnings and across the entire hourly earnings distribution, controlling for time-invariant unobserved heterogeneity. According to our results segmentation is present for dependent employees: for a large part of informal employees informal employment is used as a waiting stage to enter formal salaried employment and is not voluntarily chosen. As far as self-employment is concerned the evidence is mixed regarding segmentation in the Ukrainian labor market. This heterogeneity in outcomes implies that not all informal work is associated with a low quality of life and reduced wellbeing in post-transition economies.     

Informality and mobility

Informality is a defining characteristic of labour markets in developing and transition countries. This paper analyzes patterns of mobility across different forms of formal and informal employment in Russia. Using the Russian Longitudinal Monitoring Survey household panel we estimate a dynamic multinomial logit model with individual heterogeneity and correct for the initial conditions problem. Simulations show that structural state dependence is weak and that transition rates from informal to formal employment are not lower than from non-employment. These results lend support to the integrated view of the labour market.