Earnings inequality and informal employment in Russia

In this paper, we explore the relationship between informality and earnings inequality using the data from the Russia Longitudinal Monitoring Survey (RLMS-HSE) for 2000–2010. We determine that during the entire period, earnings inequality was substantially higher in the informal sector. Informality increases earnings polarization, widening both tails of the earnings distribution. Nonetheless, inequality has declined in both formal and informal sectors. In the formal sector, changes in the distribution of monthly earnings between 2000 and 2010 were primarily generated by changes in the distribution of hourly earnings. In the informal sector, reduction of variation in monthly earnings went through two channels: declining differences in hourly rates and considerable compositional shifts within the informal sector. The results point to the importance of distributional analysis of earnings gaps and explicit accounting for the sector choice.     

Informal self-employment and macroeconomic fluctuations

Informal self-employment is a major source of employment in developing countries. Its cyclical behavior is important to our understanding of the functioning of LDC labor markets, but turns out to be surprisingly complex. We develop a flexible model with two sectors: a formal salaried (tradable) sector that may be affected by wage rigidities, and an informal (non tradable) self-employment sector faced with liquidity constraints to entry. This labor market is then embedded in a standard small economy macro model. We show that different types of shocks interact with different institutional contexts to produce distinct patterns of comovement between key variables of the model: relative salaried/self-employed incomes, relative salaried/self-employed sector sizes and the real exchange rate. Model predictions are then tested empirically for Argentina, Brazil, Colombia and Mexico. We confirm episodes where the expansion of informal self-employment is consistent with the traditional segmentation views of informality. However, we also identify episodes where informal self-employment behaves “pro-cyclically”; here, informality is driven by relative demand or productivity shocks to the non tradable sector.     

Earnings inequality and the business cycle

Economists have long viewed recessions as contributing to increasing inequality. However, this conclusion is largely based on data from a period in which inequality was increasing over time. This paper examines the connection between long-run trends and cyclical variation in earnings inequality. We develop a model in which cyclical and trend inequality are related, and find that in our model, recessions tend to amplify long-run trends, i.e. they involve more rapidly increasing inequality when long-run inequality is increasing, and more rapidly decreasing inequality when long-run inequality is decreasing. In support of this prediction, we present evidence that during the first half of the 20th century, when earnings inequality was generally declining, earnings disparities indeed appeared to fall more rapidly in downturns, at least among workers at the top of the earnings distribution.     

The wage and non-wage costs of displacement in boom times: Evidence from Russia

This paper analyzes the costs of job loss over the years of a booming economy, 2003–2008, using unique data from the Russian Longitudinal Monitoring Survey. In addition to analyzing standard labor market outcomes, such as forgone earnings, employment, hours worked and wage penalties, our unique data set allows us to investigate additional non-wage costs of displacement, in particular, fringe benefits, the propensity to have an informal employment relationship or a temporary contract. We find that displaced individuals face large foregone earnings following displacement, which are heterogeneous across education and ownership type of firm from which the worker separated. There is no evidence of wage penalties for re-employed displaced workers. However, we find an increased probability of working in informal or temporary jobs if previously displaced and a reduction in the number of benefits.     

Informal Employment and the Structure of Wages in India: A Review of Trends

The “alternative”, “atypical” or “informal” workforce has grown in developed and developing countries alike. One of the more recent evolutions of informal employment has been of informal employment within formal enterprises. In the interest of flexibility and cost‐reduction, many formal firms increasingly resort to hiring workers on a temporary or informal basis. Alongside, and perhaps, as a result of the persistence and pervasiveness of informal employment, issues relating to inequality have come to the fore. This paper is motivated by these two intertwining aspects of Indian labor market—informality and wage inequality. Using nationally representative sample data, the paper examines trends in wage inequality among various forms of informal workers, overlaying these findings with broader trends in inequality. Using a regression based inequality decomposition, the paper compares the sources of wage inequality across different employment groups and the reasons for differences in wage inequality.     

Political change and informality

This paper examines informality during the political and economic turmoil that accompanied the Arab Spring revolution in Egypt. The paper focuses on unprotected employment and the extent to which it changed by educational level immediately after the January Uprising of 2011. We find that over time and particularly after the revolution, informal employment has increased for both high‐ and low‐educated workers, albeit through different paths: high‐educated workers were more likely to be stuck in informality, while low‐educated formal workers were more likely to lose their contracts. The increase in informal employment in the wake of the Arab Spring is more pronounced for the high‐educated. The results suggest a high level of rigidity in the Egyptian labour market, even in the wake of the Arab Spring.     

Employment polarisation and inequality in the UK and Hungary

This paper uses household budget survey microdata to explorethe growth in household income inequality in Hungary in theperiod 1987–1995, and compares it with inequality in theUK in 1995–96. Decomposition of inequality according toboth household characteristics and income sources shows that,while inequality did grow rapidly in Hungary over the earlyTransition period, several factors prevented its growth to higherlevels. One of these factors, the distribution of employmentand earnings between households, is explored in some detail.While there was considerable polarisation between householdswith and without employed members in the UK in 1995–96,this was less of a feature in Hungary, in spite of a massivewithdrawal of men and women from the labour market between 1987and 1995. Rather, a narrowing of the gender pay gap and a continuedhigh level of female participation in employment appears tohave ensured that, even as earnings inequality in Hungary increasedto the extent that it surpassed earnings inequality in the UK,the distribution of household earnings, and the distributionof household incomes, remained more equal in Hungary.     

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.     

The labor market effects of introducing unemployment benefits in an economy with high informality

Unemployment benefit systems are nonexistent in many developing economies. Introducing such systems poses many challenges which are partly due to the high level of informality in the labor markets of these economies. This paper studies the consequences on the labor market of implementing an unemployment benefit system in economies with large informal sectors and high flows of workers between formality and informality. We build a search and matching model with endogenous destruction, on-the-job search, and intersectoral flows, where agents in the economy decide optimally whether or not to formalize jobs. We calibrate the model for Mexico, and show that the introduction of an unemployment benefit system, where workers contribute when employed in the formal market and collect benefits when they lose their jobs, even if they obtain informal jobs, can lead to an increase in formality in the economy, while also producing small increases in unemployment. The exact impact of incorporating such benefits depends on the relative strength of two opposing effects: the generosity of the benefits and the level of the contributions that finance those benefits. We also show important policy complementarities with other interventions in the labor market. In particular, combining the unemployment benefit program with policies that reduce the cost of formality, such as lower employment taxes and firing costs, can produce greater decreases in informality and lower impacts on unemployment than when the program is applied in isolation.     

EARNINGS INEQUALITY, LABOUR SUPPLY AND SCHOOLING IN HUSBAND–WIFE FAMILIES

This paper describes the association between market work and earnings inequality across families over the life cycle and over calendar time with special attention to the different experiences of college‐educated and high‐school‐educated people. A concise and effective accounting framework is developed that allows for an assessment of the effect of the growing market employment of married women on family earnings inequality. Applying this framework to pseudo‐panel data from successive Current Population Surveys indicates that the increase in wives' employment has diminished the growth in family earnings inequality especially for well‐educated couples. Inferences about the level and change in earnings inequality depend on the degree of labor market attachment of the people studied especially in the case of wives.     

Inequality trends for Germany in the last two decades: A tale of two countries

In this paper we first document inequality trends in wages, hours worked, earnings, consumption, and wealth for Germany from the last twenty years. We generally find that inequality was relatively stable in West Germany until the German reunification, and then trended upwards for wages and market incomes, especially after about 1998. Disposable income and consumption, on the other hand, display only a modest increase in inequality over the same period. These trends occurred against the backdrop of lower trend growth of earnings, incomes and consumption in the 1990s relative to the 1980s. In the second part of the paper we further analyze the differences between East and West Germans in terms of the evolution of levels and inequality of wages, income, and consumption.     

The risk and cost of job loss in Canada, 1978–2008

We assess the risk and cost of worker displacement in Canada over the last three decades. We show that neither the risk of job loss nor the short‐term earnings losses of displaced workers trended upwards during that period. However, short‐term earnings losses of workers displaced from manufacturing increased in recent years, as a smaller proportion found a post‐displacement job in that sector. In line with Stevens ( 1997 ) and Couch and Placzek ( 2010 ), we find that high‐seniority workers and individuals with stable labour market attachment experienced, five years after displacement, earnings losses that ranged between 10% and 18%.     

Informal pay gaps in good and bad times: Evidence from Russia

Informal work is traditionally large in Russia and has further increased in the recent years. We explore the implications of this shift in terms of wage dynamics. Our characterization is based on the estimation of informal pay gaps at the mean and along the wage distribution, relying on the Russian Longitudinal Monitoring Survey for 2003–2017. Our approach comprises three original features: we rely on unconditional quantile effects of informality, we incorporate quantile-specific fixed effects using a tractable approach, and we suggest a treatment of the incidental parameter bias. Over the whole period, informal wage penalties are relatively small and do not suggest heavily segmented labor markets, even at low wage levels. Yet, in the past decade, a substantial negative selection into informal employment and self-employment has taken place, on average and especially at low earnings. Economic downturns and labor market policies have likely contributed to the shakeout of less productive workers in the formal sector, making the low-tier informal sector more of a last resort.     

Job creation and job destruction in the presence of informal markets

In developing economies, the fraction of informal workers can be as high as 70% of total employment. For economies with significant informal sectors, business cycle fluctuations and labor market policy interventions can have important effects not only on the unemployment rate, but also on the allocation of workers across regulated and unregulated jobs. In this paper, using worker flows data from Brazil, we build, calibrate, and simulate a two-sector search and matching labor market model, in which firms have the choice of hiring workers formally or informally. We show that our model can explain well the main cyclical patterns that lead to those cyclical reallocations. We also show how the effect of government interventions in the labor market depend on the magnitude of the reallocation of labor across regulated and unregulated sectors. For our calibration, policies that decrease the cost of formal jobs, or increase the cost of informality, raise the share of formal employment while reducing unemployment.     

Mexico in the 1990s: The Main Cross-Sectional Facts

This paper describes the main cross-sectional facts on individual and household earnings, labor supply, income, consumption and wealth in Mexico in the decade of the 1990s. We use two different data sources: the Mexican Employment Survey (ENEU) and the Mexican Income and Expenditure Survey (ENIGH). The contribution of this paper is twofold. First, we integrate the two surveys to provide a complete characterization of the changes in employment, wages, income, consumption and wealth in the 1990s. Second, we highlight some distinctive features that characterize the Mexican economy in this decade. In particular, we focus on the changes in the size of the informal sector and we study the relationship between changes in informality and changes in wage inequality.     

Earnings inequality and unemployment in South Africa

Unemployment and earnings inequality have moved together remarkably closely in South Africa in recent years. This article explores the relationship between unemployment and earnings inequality in South Africa, investigating the extent to which changes in unemployment can account for changes in earnings inequality. Static and dynamic decompositions of earnings inequality by employment status reveal the centrality of unemployment in accounting for the both level and trend of earnings inequality. The distribution of employment in the formal and informal sectors is found to be of lesser importance in explaining earnings inequality, as is wage dispersion within each of these categories. The findings point to the central importance of reducing unemployment in South Africa if the extremely high levels of inequality are to be reduced.     

Unequal we stand: An empirical analysis of economic inequality in the United States, 1967–2006

We conduct a systematic empirical study of cross-sectional inequality in the United States, integrating data from the Current Population Survey, the Panel Study of Income Dynamics, the Consumer Expenditure Survey, and the Survey of Consumer Finances. In order to understand how different dimensions of inequality are related via choices, markets, and institutions, we follow the mapping suggested by the household budget constraint from individual wages to individual earnings, to household earnings, to disposable income, and, ultimately, to consumption and wealth. We document a continuous and sizable increase in wage inequality over the sample period. Changes in the distribution of hours worked sharpen the rise in earnings inequality before 1982, but mitigate its increase thereafter. Taxes and transfers compress the level of income inequality, especially at the bottom of the distribution, but have little effect on the overall trend. Finally, access to financial markets has limited both the level and growth of consumption inequality.     

Review Essay on Economics for the Common Good

The initial stage of labor market activity for young adults influences their labor market engagement and earnings profiles over their life cycle. I examine earnings inequality among young adults in a dynamic setting. Education, marital status, race are contributors to the observed earnings inequality. Earnings equalization is observed in the long run, and the proportion of earnings inequality attributed to education, marital status, and race is found to be significant.     

CAN HOUSEHOLDS AND WELFARE STATES MITIGATE RISING EARNINGS INSTABILITY?

We compare the evolution of earnings instability in Germany and the United Kingdom, two countries which stand for different types of welfare states. Deploying data from the German Socio‐Economic Panel (SOEP) and the British Household Panel Survey (BHPS), we estimate permanent and transitory variances of male income over the period 1984–2009 and 1991–2006, respectively. Studies in this literature generally use individual labor earnings. To uncover the role of welfare state and households in smoothening earnings shocks, we compute different income concepts ranging from gross earnings to net equivalent household income. We find evidence that the overall inequality of earnings in Germany and the United Kingdom has been rising throughout the period due to both higher permanent earnings inequality and higher earnings volatility. However, taking institutions of the welfare state and risk‐sharing households into account, we find that the volatility of net household income has remained fairly stable. Furthermore, redistribution and risk insurance provided by the welfare state is more pronounced in Germany than in the United Kingdom.     

EQUALITY OF OPPORTUNITY: EAST VS. WEST GERMANY

The case of German reunification has been subject to extensive research on earnings inequality and labour market integration. However, little is known about the development of equality of opportunity (EOp) in East and West Germany after 1990. Using German micro data, we empirically analyse how circumstances beyond the sphere of individual control relate to inequality in East and West Germany. Our results show that EOp is larger in East than in West Germany. However, despite increasing income inequality, EOp remained surprisingly constant.