On defining and measuring the informal sector

A range of alternative empirical definitions of informal activity have been employed in the literature. Choice of definition is often dictated by data availability. Different definitions may imply very different conceptual understandings of informality. In this paper the authors investigate the degree of congruence between three definitions of informality based on employment contract registration, social security protection, and the characteristics of the employer and employment using Brazilian household survey data for the period 1992 to 2001. The authors present evidence showing that 64 percent of the economically active population are informal according to at least one definition, but only 40 percent are informal according to all three. Steady compositional changes have been taking place among informal workers, conditional on definition. The econometric analysis reveals that the conditional impact of particular factors (demographic, educational attainment, and family circumstances) on the likelihood of informality varies considerably from one definition to another. The results suggest growing heterogeneity within the informal sector. Therefore, the authors argue that informal activity may be as much associated with entrepreneurial dynamism as with any desire to avoid costly contract registration and social protection. However, the authors confirm there is no a priori reason for entrepreneurial activity to be unprotected. Consequently definitions of informality based on occupation and employer size seem the most arbitrary in practice even if conceptually well-founded.Labor Markets,Labor Standards,Work&Working Conditions,Labor Management and Relations,Tertiary Education

Human capital and earnings inequality in Brazil, 1988-98 : quantile regression evidence

The authors undertake an empirical examination of rates of return to human capital for men in Brazil, through the period of macroeconomic stabilization and trade liberalization, using data from the 1988, 1992, and 1998 Brazilian household surveys (Pesquisa Nacional por Amostra de Domic?os, PNAD). The authors estimate simultaneous quantile equations to gain an insight on the impact of human capital on wages across the hourly earnings distribution. They conclude that there is evidence of growing inequality in rates of return to education in Brazil. But the authors find evidence that education is no longer used as a screening device in the labor market, but rather rewarded for its innate association with higher productivity. Although increases in rates of return to education have been more pronounced at the top of the earnings distribution, this has not led to increased inequality. This is because the levels of education and other labor market-rewarded endowments have increased and offset the rate of return effect.Public Health Promotion,Decentralization,Health Monitoring&Evaluation,Curriculum&Instruction,Teaching and Learning,Economic Theory&Research,Fiscal&Monetary Policy,Curriculum&Instruction,Teaching and Learning,Health Monitoring&Evaluation

Gays' Pay in the UK

This paper attempts, for the first time for the UK, to analyse the earnings of homosexuals and test for the possible existence of sexual orientation discrimination. Homosexuals are identified as individuals living with "same sex partners". Using twenty quarters of the LFS, we identify 630 homosexuals. Decomposition analysis indicates that although gays earn more than non-gays they are still discriminated against. However, looking at gay men and lesbians separately we find that it is homosexual men who are subject to discrimination and therefore are likely to benefit from legislation that has to be in place in the UK by the end of 2003.

Gender wage differentials in Brazil : trends over a turbulent era

Since the late 1980s, macroeconomic and trade reform in Brazil appears to have been accompanied by a substantial improvement in the position of women compared with men in the labor market, despite only modest changes to labor market institutions. The authors examine movements in the gender wage gap from 1988 to 1998. Their findings indicate that, over this period, the gender wage gap fell mainly because of reduced discrimination against women. But the authors find evidence to suggest that, more recently, since the elimination of high inflation, human capital investments and other earnings-related enhancements have begun to improve women's condition.Public Health Promotion,Anthropology,Health Monitoring&Evaluation,Gender and Development,Population&Development,Anthropology,Agricultural Knowledge&Information Systems,Environmental Economics&Policies,Health Monitoring&Evaluation,Population&Development

Returns to schooling in Kazakhstan: OLS and instrumental variables approach

This paper examines rates of return to schooling in Kazakhstan using OLS and instrumental variable (IV) methodologies. We use spouse's education and smoking as instruments. We find that spouse's education is a valid instrument and that conventional OLS estimates that assume the exogenous nature of schooling, and hence do not control for endogeneity bias, may underestimate the true rates of return. The results indicate that the returns to schooling in Kazakhstan have increased with transition. This may reflect the relative scarcities of highly educated people in Kazakhstan with human capital that employers require and, following the market reforms, reward accordingly

On defining and measuring the informal sector

A range of alternative empirical definitions of informal activity have been employed in the literature. Choice of definition is often dictated by data availability. Different definitions may imply very different conceptual understandings of informality. This paper investigates the degree of congruence between three definitions of informality based on employment contract registration, on social security protection and the characteristics of the employer and employment using Brazilian household survey data for the period 1992 to 2001. 64% of the economically active are informal according to at least one definition, but only 40% are informal according to all three. Steady compositional changes have been taking place amongst informal workers, conditional on definition. Econometric analysis reveals that the conditional impact of particular factors (demographic, educational attainment, family circumstances) on the likelihood of informality varies considerably from one definition to another. Results suggest growing heterogeneity within the informal sector. Informal activity may be as much associated with entrepreneurial dynamism as with any desire to avoid costly contract registration and social protection. However there is no a priori reason for entrepreneurial activity to be unprotected. Results in the paper confirm this. Consequently definitions of informality based on occupation and employer size seem the most arbitrary in practice even if conceptually well-founded

Returns to education in four transition countries: Quantile regression approach

This paper uses quantile regression techniques to analyze heterogeneous patterns of return to education across the conditional wage distribution in four transition countries. We correct for sample selection bias using a procedure suggested by Buchinsky (2001), which is based on a Newey (1991, 2009) power series expansion. We also examine the empirical implications of allowing for the endogeneity of schooling, using the control function approach proposed by Lee (2007). Using household data from Bulgaria, Russia, Kazakhstan and Serbia in 2003, we show that the return to education is heterogeneous across the earnings distribution. It is also found that accounting for the endogeneity of schooling leads to a higher rate of return to education

Entrepreneurship: cause and consequence of financial optimism

Extant evidence that the self-employed overestimate their returns by a greater margin than employees is consistent with two mutually inclusive possibilities. Self-employment may foster optimism or intrinsic optimists may be drawn to self-employment. Previous research is generally unable to disentangle these effects because of reliance on cross-sectional data. Using longitudinal data, this paper finds that employees who will be self-employed in the future overestimate their short-term financial wellbeing by more than those who never become self-employed. Optimism is higher still when self-employed. These results suggest that the greater optimism of the self-employed reflects both psychological disposition and environmental factors. By providing greater scope for optimism, self-employment entices the intrinsically optimistic

Is there an informal employment wage premium? Evidence from Tajikistan

This paper defines informal sector employment and decomposes the difference in earnings between formal and informal sector employees in Tajikistan for 2007. Using quantile regression decomposition technique proposed by JAE, 20:445-465, 2005and considering self-selection of individuals into different employment types, we find a significant informal employment wage premium across the whole earnings distribution. Taking advantage of RES, 90:290-299, 2008matching approach and considering the possibility of misleading results due to different observed characteristics of formal and informal workers, we still find a wage gap in favour of informal sector workers

Entrepreneurship: Cause or consequence of financial optimism?

Extant evidence that the self-employed overestimate their returns by more than employees do is consistent with two mutually inclusive possibilities. Self-employment may generate optimism or optimists may be drawn to self-employment. This paper finds that employees who will be self-employed in the future overestimate their short-run financial wellbeing by more than those who never become self-employed. When actually self-employed they are even more optimistic. Employees aspiring to start their own business are also of above average optimism. Cross-sectional findings are therefore an amalgam of psychological disposition and environmental factors, as theory requires if optimism is to be a causal influence on entrepreneurship