Does the Minimum Wage Have a Higher Impact on the Informal than on the Formal Labor Market? Evidence from Quasi-Experiments

This paper investigates a puzzle in the literature on labor markets in developing countries: labor legislations not only have an impact on the formal labor market but also an impact on the informal sector. It has even been argued that the impact on the informal sector in the case of the minimum wage is stronger than on the formal sector. Using quasi-experiments of minimum wage changes and thereby exploiting geographical variation of the minimum wage bite, I find evidence for this hypothesis. Informal workers, workers without social security contribution, experienced significant wage increases when the minimum wage was raised while formal workers did not. This result highlights that non-compliance with one labor legislation, the social security contribution, does not necessarily imply non-compliance to other labor laws such as the minimum wage.minimum wages, informal economy, quasi-experiments

A Note on Informality in the Labor Market

This paper provides a detailed analysis of various dimensions of informality in the Mexican labor market. To understand the nature of informality in terms of regulations and compliance, the legalistic view, and in terms of productivity view of the labor market this paper makes an empirical contribution to the debate in the literature on the concept of informality. Questions related to these various concepts, social security and benefits coverage, contractual information, legal status of migrants, the nature of self-employment and job history information are analyzed in terms of their relationship to each other and are also related to individual and household characteristics. This paper finds a substantial overlap between the various concepts, current legal arrangements of social security coverage or contract and also in the individual's job history. In terms of individual characteristics age, education, martial status and scores in the Raven's test, an ability measure, are significant determinants for the various forms of informality, with some degree of variation across the different categories. Overall, a case is made for further studies of household survey data and the implementation of questions relating to different dimensions of informality and their inter-linkages.informality, social security, contracts, illegal migration, self-employment, job history, Mexico

Crisis and Recovery in Argentina: Labor market, poverty, inequality and pro-poor growth dynamics

This paper explores the labor market, poverty, inequality and pro-poor growth dynamics in the recent economic crisis and recovery in Argentina. In the labor market it is possible to see the diverging experience of the economic crisis and recovery. For instance, the unemployed were more likely to find employment in the informal sector than in the formal sector. In terms of economic sectors it seems that certain labor-intensive, dynamic, low-skilled sectors such as manufacturing, other services, construction and retail contributed most to the movement between the different labor force states of employment, unemployment and inactivity. Policy responses in the labor market to poverty and inequality increases from the economic crisis were implemented through government transfers, in particular the workfare program Plan Jefes y Jefas. The pro-poor features of the early economic recovery period were mainly accounted for by these government transfers. However, at later stages of recovery income increases of the poor are less attributed to government transfers and more due to the pro-poor pattern of growth itself.Economic crisis and recovery; poverty; informal labor market; workfare programs; Argentina

Is Informal Sector Work an Alternative to Workfare Benefits? The Case of Pre-Program Expansion and Economic Crisis

Limited availability of workfare programs and unemployment insurance and a large informal sector are features of the Argentine labor market at the outset of the 2001 economic crisis. This paper tests the hypothesis whether informal work is an alternative to workfare participation before a large-scale program expansion took place. Results from the propensity score matching indicate that observable characteristics of informal low-income workers and current workfare participants are significantly different. However, within these groups, it is possible to identify subgroups that exhibit similar observable characteristics. This indicates that only a subset of the individuals sees workfare and informal sector work as substitutable alternatives.South America, Argentina, informal labor market, workfare program, propensity score matching

Comparative Advantage, Segmentation and Informal Earnings: A Marginal Treatment Effects Approach

This paper employs recently developed econometric models of marginal treatment effects to analyze the relevance of labor market comparative advantage and segmentation in the participation and earnings performance of workers in formal and informal jobs in Argentina. A novel household data set on informality and self-employment and information on labor inspections targeting informal work was collected for this purpose. We account for endogeneity and selectivity issues in our estimations. Our results offer evidence for both comparative advantage and segmentation. No significant differences between the earnings of formal salaried workers and the self-employed are found, once accounted for positive selection bias into formal work. This is consistent with labor market comparative advantage considerations. On the contrary, informal salaried employment carries significant earnings penalties, alongside negative selection bias and modest positive sorting. These results are more consistent with segmentation.marginal treatment effects, occupational choice, segmentation, earnings, comparative advantage, informality, labor markets

The Persistence of Informality: Evidence from Panel Data

Informality is a growing phenomenon in the developing and transition country labor market context. In particular, it is noticeable that working in an informal employment relationship is often not temporary. The degree of persistence of informality in the labor market might be due to different sources: structural state dependence due to past informality experiences and spurious state dependence due to time-invariant unobserved individual effects, which can alter the propensity of being in the informal sector independently from actual informality experiences. The purpose of our paper is to study the dynamics of informality using a genuine panel data set in the Ukrainian labor market. By estimating a dynamic panel data probit model with endogenous initial conditions, we find a highly significant degree of persistence due to previous informality experiences. This result implies that policies attempting to reduce current levels of informality may have a long-lasting effect on the labor market.unobserved heterogeneity, state dependence, transition countries, informality

Consumption and Social Identity: Evidence from India

We examine spending on consumption items which have signaling value in social interactions across groups with distinctive social identities in India, where social identities are defined by caste and religious affiliations. The classification of such items was done by eliciting responses to a survey in India. We match the results of our survey with nationally representative micro data on household consumption expenditures. We find that disadvantaged caste groups such as Other Backward Castes spend nine percent more on visible consumption than Brahmin and High Caste groups while social groups such as Muslims spend eleven percent less, after controlling for differences in permanent income and demographic composition of households. These differences are significant and robust. Additionally, we find that these differences can be partly explained as a result of the status signaling nature of such consumption items.households, consumption, India

Rubble Women: The Long-Term Effects of Postwar Reconstruction on Female Labor Market Outcomes

During World War II, more than one-half million tons of bombs were dropped in aerial raids on German cities, destroying about forty percent of the total housing stock nationwide. With a large fraction of the male population gone, the reconstruction process had mainly fallen on women in postwar Germany. This paper provides causal evidence on long-term legacies of postwar reconstruction and mandatory employment on women's labor market outcomes. We combine a unique dataset on city-level destruction in Germany caused by the Allied Air Forces bombing during WWII with individual survey data from the German Microcensus. Using difference-in-difference and instrumental-variable strategies, we find that postwar mandatory employment reduced female labor force participation and hours worked in the long-run. However, our results show that participating in postwar reconstruction efforts increased the female presence in medium-skill and female-dominated occupations. These results survive after accounting for labor supply side factors such as wealth and savings loss during WWII, war relief payments and change in the composition of population and labor demand side factors such as female share in industry, construction, service and public sectors.postwar reconstruction, female labor force participation, occupational choice

Ethnic Fragmentation, Conflict, Displaced Persons and Human Trafficking: An Empirical Analysis

Ethnic conflicts and their links to international human trafficking have recently received a surge in international attention. It appears that ethnic conflicts exacerbate the internal displacement of individuals from networks of family and community, and their access to economic and social safety nets. These same individuals are then vulnerable to being trafficked by the hopes of better economic prospects elsewhere. In this paper, we empirically examine this link between ethnic fragmentation, conflicts, internally displaced persons (IDPs), refugees and international trafficking, making use of a novel dataset of international trafficking. We conduct a direct estimation, which highlights the ultimate impact of ethnic fragmentation and conflict on international trafficking through internal and international displacements.ethnic fragmentation, conflict, displaced persons, human trafficking