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Informal Employment: Safety Net or Growth Engine?

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Author Info

  • Loayza, Norman V.
  • Rigolini, Jamele

Abstract

Summary Is informal employment a safety net or a growth engine? To address this question, this paper studies the trends and cycles of informal employment. It first presents a theoretical model of long- and short-run behavior of informal labor. Then it analyzes these relationships empirically, using the share of self-employment in the labor force as the proxy for informal employment. In the long run, informality is larger when labor productivity is lower, government services weaker, and business flexibility less prevalent. In the short run, informal employment behaves counter-cyclically, indicating that it acts primarily as a safety net. The degree of counter-cyclicality, however, varies inversely with the size of informal labor itself.

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Bibliographic Info

Article provided by Elsevier in its journal World Development.

Volume (Year): 39 (2011)
Issue (Month): 9 (September)
Pages: 1503-1515

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Handle: RePEc:eee:wdevel:v:39:y:2011:i:9:p:1503-1515

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

Related research

Keywords: informality shadow economy business cycle;

References

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  1. Sarte, Pierre-Daniel G., 2000. "Informality and rent-seeking bureaucracies in a model of long-run growth," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 173-197, August.
  2. Loayza, Norman V., 1996. "The economics of the informal sector: a simple model and some empirical evidence from Latin America," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 129-162, December.
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  9. Trevor Breusch, 2005. "Estimating the Underground Economy using MIMIC Models," Econometrics 0507003, EconWPA, revised 25 Jul 2005.
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  16. HINDRIKS, Jean & KEEN, Michael & MUTHOO, Abhinay, . "Corruption, extortion and evasion," CORE Discussion Papers RP -1671, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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Citations

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Cited by:
  1. Gabriele Morettini & Andrea F. Presbitero & Massimo Tamberi, 2012. "Determinants of international migrations to Italian provinces," Economics Bulletin, AccessEcon, vol. 32(2), pages 1604-1617.
  2. Webb, Justin W. & Bruton, Garry D. & Tihanyi, Laszlo & Ireland, R. Duane, 2013. "Research on entrepreneurship in the informal economy: Framing a research agenda," Journal of Business Venturing, Elsevier, vol. 28(5), pages 598-614.

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