Urban informal sector and poverty

Many studies have explored the connection between trade and poverty theoretically and empirically for the developing world. We offer another look at the possible implications of trade liberalization on urban poverty by using the urban informal sector as a catalyst. The theory shows that trade liberalization in the import competing sector raises informal wage across occupational types, and expands production and employment in the informal industrial segment. Further, using Indian provincial data on wage, capital stock and value added in the informal sector we show that real informal wage increased with trade reform and transmitted favorable impact on urban poverty reduction.     

Urban unemployment, informal sector and development policies

We analyze the effects of wage subsidy policies on unemployment and welfare in the model that is characterized by the existence of both open unemployment and the informal sector that producesfinal goods. Our main findings are as follows. Wage subsidies to the agricultural and informal sectors increase welfare and decrease urban unemployment. The effects of a wage subsidy to manufacturing sector on welfare and unemployment are conditional. We identify some sufficient conditions for the definite results and interpret them.     

Education and earnings in urban West Africa

Using a series of comparable labor force surveys in urban West Africa, we estimate the private returns to education among representative samples of workers in seven economic capitals (Abidjan, Bamako, Cotonou, Dakar, Lome, Niamey and Ouagadougou). The data allow us to provide a unique cross-country comparison using rigorously the same variables and methodology for each country. We tackle the issues of endogenous sector allocation (public, formal private and informal sectors) and endogeneity of the education variable in the earnings functions. We find that the returns to schooling are most often enhanced once an endogenous education variable is accounted for. This effect holds particularly true in the informal sector. In most West African cities of our sample, the public sector gives more value to education, followed by the formal private sector and then the informal sector. We also shed light on convex returns to education in all the cities and sectors, including in informal activity. More generally, a major contribution of this paper is to provide evidence of significant effects of education on individual earnings in the informal sectors of the West African cities, even at high levels of schooling.     

INFLOW OF FOREIGN CAPITAL AND TRADE LIBERALIZATION IN A MODEL WITH AN INFORMAL SECTOR AND URBAN UNEMPLOYMENT

Abstract.  The paper has made an attempt to analyse the effects of liberalized trade and investment policies on welfare and open unemployment in a developing economy in terms of a three sector Harris-Todaro type general equilibrium model. Following empirical evidence it is assumed that there is wage rigidity in urban sectors, which leads to the simultaneous existence of open unemployment and an urban informal sector in the migration equilibrium. The paper deserves special attention for its interesting results which are completely opposite to those generated by the standard Harris-Todaro model.     

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.     

Informal economy, wage goods and accumulation under structural adjustment theoretical reflections based on the Tanzanian experience

Economic development in sub-Saharan Africa under structuraladjustment witnessed the upsurge of informal sector development—thedevelopment of unregulated labour-intensive activities, in partexport-oriented. This paper argues that two factors played animportant role in shaping the dynamics of informal sector development:(1) the process of the relative cheapening of wage goods asa result of their importation, partly financed through foreignaid, thereby lowering unit-labour costs in labour-intensiveproduction, and (2) the processes at work of subsidising realwages by other forms of economic security as a result of multiple,diversified and spatially extended livelihood strategies. Whilethese factors undoubtedly brought a new vitality to economicdevelopment, this paper questions the long-run sustainabilityof this new trend for two reasons. One is its dependence onforeign aid to finance imports. The other is that it does notappear to propel endogenous increases in productivity by achievinggreater synergy in intersectoral linkages between agricultureand industry.     

Regulation of entry, labor market institutions and the informal sector

This paper develops a two-sector matching model that incorporates the main features of Latin American labor markets. It has an innovation in its matching structure that makes it more consistent with some key stylized facts of the informal sector in these countries. The model is numerically solved using Brazilian data and several policy simulations are performed. Reducing formal sector's entry cost significantly reduces the size of the informal sector and improves overall labor market performance. Increasing enforcement significantly reduces informality but has strong adverse effects on unemployment and welfare. Thus, the results indicate that the tradeoff between lower informal employment and higher unemployment rates is not present when one looks at policies that aim at reducing the costs of being formal, as opposed to policies that simply increase the costs of being informal.     

Analyzing the effect of advanced agriculture development policy

This paper broadens the scope of current theoretical studies, divides rural agriculture into two sectors—advanced and traditional, and takes into consideration the land factor and the urban informal sector. Under the assumption that wages in the advanced agricultural sector are higher than in the traditional agricultural sector, this paper analyzes the effect of policies to promote advanced agricultural development with the comparative static method. The main conclusions of this paper are: wage subsidization of the advanced agricultural sector, in addition to having the same economic impact as interest subsidies on the advanced agricultural sector, could also increase the land employment in the advanced agricultural sector and reduce that in the traditional agricultural sector. Therefore, the effect of wage subsidizing policies is stronger than that of interest subsidies, while land rent subsidies for the advanced agricultural sector have the same economic effect as wage subsidies.     

The formal sector wage premium and firm size

We show theoretically that when larger firms pay higher wages and are more likely to be caught defaulting on labor taxes, then large-high wage firms will be in the formal and small-low wage firms will be in the informal sector. The formal sector wage premium is thus just a firm size wage differential. Using data from Ecuador we illustrate that firm size is indeed the key variable determining whether a formal sector premium exists.     

Wage differentials and state‐private sector employment choice in Yugoslavia*

In this study we use the newly available Yugoslavian Labor Force Survey data to investigate wage differentials and employment decisions in the state and private sectors in Yugoslavia. For the analysis we use three empirical models that rely on different statistical assumptions. We extend the standard switching regression model to allow non‐normality in the joint distribution of the error terms. After correcting for the sector selection bias and controlling for workers’ characteristics we find a private sector wage advantage. The wage premium is largest for workers with low education levels and declining for workers with higher educational levels. Given the regulatory and tax policies that pushed the private sector into the informal sphere of the economy during the period covered by our data, we argue that the state/private wage gap is likely to grow in the future. This will make it increasingly difficult for the state sector to attract and retain highly skilled employees.     

非正规部门竞争与企业创新行为关系研究

非正规部门快速发展在缓解中国就业压力、满足低端需求和促进经济增长的同时,对中国制造业企业经营带来了很大影响。基于2012年世界银行营商环境调查数据,分析非正规部门灰色竞争对中国制造业企业创新活动的影响。研究发现：非正规部门灰色竞争显著增加企业研发投入倾向和研发投入强度;灰色竞争与企业产品创新活动有显著正相关关系,但未发现与企业流程创新活动有显著关系;制造业中高新技术企业创新活动受非正规部门灰色竞争的影响相对较弱。用工具变量控制内生性后,以上结论依然成立。为了应对非正规部门的灰色竞争,制造业企业应不断强化研发投入,通过模仿创新和微创新的方式加速产品更新升级,以区分于非正规部门的产品。     

Contract enforcement and the size of the informal economy

This paper describes a model where the size of the informal sector decreases as the degree to which financing contracts can be enforced in the formal sector rises. Agents who choose to operate in the informal sector can evade taxes, but they have no access to official means of contract enforcement. Numerical simulations of the model suggest that lax tax enforcement alone does not suffice to generate a large informal sector. Contractual imperfections, on the other hand, can generate a large informal sector and account for several distinguishing features of the organization of production in developing economies. I would like to thank Tim Kehoe, Ed Prescott and Manuel Santos for their guidance, and seminar participants at ITAM, the Universidad Torcuato di Tella and the University of Montréal for their valuable comments. The views expressed herein are those of the authors and may not reflect the views of the Federal Reserve Bank of Dallas or the Federal Reserve System.     

SEEKING RENT IN THE INFORMAL SECTOR

Rent seeking within the vast informal segment of the developing world is a relatively under‐explored topic in the interface of labor market policies and public economics. Moreover, how rent seeking and corruption within the informal segment gets affected by economic reforms targeted for the formal sector is rarely discussed in the literature. This paper fills the gap. We identify conditions under which economic reform in the formal segment will increase the rate of corruption or rent seeking in the informal sector and raise the pay‐off for those involved in rent‐seeking activities. When the formal sector contracts due to reforms, rent seeking in the informal sector may increase and lower the level of welfare unconditionally. Economic reforms may increase corruption instead of reducing it, unlike standard conjectures.     

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.     

Economic Reforms and Gender-Based Wage Inequality in the Presence of Factor Market Distortions

A simple three-sector general equilibrium model has been developed with both male and female labour and factor market distortions. The effects of different liberalized economic policies have been examined on the gender-based wage inequality. The analysis finds that credit market reform and tariff reform produce favourable effects on the wage inequality while the liberalized investment policy becomes counterproductive. The basic model has been extended to treat domestic capital differently from foreign capital. In the extended model, all of the above results hold. Additionally, it has been found that domestic capital formation is likely to produce a favourable impact on the gender wage inequality. These results have important policy implications for a small open developing economy.

     

The Effects of Market Liberalization on the Relative Earnings of Chinese Women

In this paper, we explore the effects of differences in labor market institutions and the degree of market liberalization on the size and composition of gender wages gaps in China's urban labor markets. We use enterprise-ownership type, enterprise age, and workers' methods of finding employment as proxies for the extent of market liberalization. We find both the size of the wage gaps and the proportion of the gap left unexplained by differences in observed characteristics largest in the most liberalized joint-venture sector and smallest in the least liberalized state sector. We next investigate the effects of differences in the wage structure on the gender wage gaps. We find that differences in the wage structure, in general, and the degree of wage dispersion, in particular, are extremely important in accounting for the larger wage gaps in the joint-venture and collective sectors relative to the state-owned sector. J. Comp. Econ., June 2002 30(4), pp. 709–731. Department of Economics, Bates College, Lewiston, Maine 04240. © 2002 Association for Comparative Economic Studies. Published by Elsevier Science (USA). All rights reserved.Journal of Economic Literature Classification Numbers: Numbers: J16, J31, J71, O15, O53, P23.     

Wage differentials by sector and gender: a quantile analysis for the Spanish case

This paper analyses existing wage differentials between workers in the public and private sectors and by gender in Spain. This analysis is run throughout the entire earnings distribution and observed wage differentials are decomposed into a part explained by differences in productive characteristics and a part due to differences in returns to such characteristics. Our results show that public sector workers tend to earn higher wages than private employees, although most of this sector wage gap is due to better public workers’ productive characteristics. A wage premium in favour of men is also found in both the public and private sectors, with the gender wage gap greater at the top of the earnings distribution.     

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.     

The effects of economic reforms on manufacturing dualism: Evidence from India

Dualism is a pervasive feature of the manufacturing sectors of less-developed countries, with large differences in productivity between the informal and the formal sectors. Policy distortions are viewed as an important factor behind the prevalence of manufacturing dualism. We examine whether tariff reforms, industrial de-licensing and the withdrawal of reservation of products for small firms implemented since the mid-1980s have had any effects on efficiency differentials between informal and formal firms in Indian manufacturing. We find strong evidence that economic reforms have exacerbated dualism by increasing the productivity differentials between the more efficient formal firms and the less efficient informal firms.     

Electricity sector reform in developing countries: an econometric assessment of the effects of privatization,competition and regulation

Electricity sectors in both developed and developing countries have been subject to restructuring to introduce private capital and increase competition. Although the effects of such reforms in a number of the developed economies are now well documented, the experience of developing countries is much less well researched. This paper provides an econometric assessment of the effects of privatization, competition and regulation on the performance of the electricity generation industry using panel data for 36 developing and transitional countries, over the period 1985–2003. The study identifies the impact of these reforms on generating capacity, electricity generated, labor productivity in the generating sector and capacity utilization. The main conclusions are that on their own privatization and regulation (PR) do not lead to obvious gains in economic performance, though there are some positive interaction effects. By contrast, introducing competition does seem to be effective in stimulating performance improvements.