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The formal sector wage premium and firm size

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  • El Badaoui, Eliane
  • Strobl, Eric
  • Walsh, Frank

Abstract

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.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 91 (2010)
Issue (Month): 1 (January)
Pages: 37-47

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Handle: RePEc:eee:deveco:v:91:y:2010:i:1:p:37-47

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Web page: http://www.elsevier.com/locate/devec

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Keywords: Formal sector wage premium Firm size;

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References

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Citations

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Cited by:
  1. Costas Meghir & Renata Narita, Jean-Marc Robin, 2013. "Wages and Informality in Developing Countries," Working Papers, Department of Economics 2013_20, University of São Paulo (FEA-USP).
  2. Olivier Bargain & Prudence Kwenda, 2009. "The Informal Sector Wage Gap: New Evidence Using Quantile Estimations on Panel Data," Working Papers 200916, Geary Institute, University College Dublin.
  3. Olivier Bargain & Eliane El Badaoui & Prudence Kwenda & Eric Strobl & Frank Walsh, 2012. "The Formal Sector Wage Premium and Firm Size for Self-employed Workers," Working Papers 201207, School Of Economics, University College Dublin.
  4. Erol Taymaz, 2009. "Informality and Productivity: Productivity Differentials between Formal and Informal Firms in Turkey," ERC Working Papers 0901, ERC - Economic Research Center, Middle East Technical University, revised Mar 2009.
  5. Olivier Bargain & Prudence Kwenda, 2009. "The Informal Sector Wage Gap: New Evidence Using Quantile Regressions on Panel Data," CEDI Discussion Paper Series 09-06, Centre for Economic Development and Institutions(CEDI), Brunel University.

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