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Is There an Informal Employment Wage Penalty? Evidence from South Africa

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Author Info
Eliane El Badaoui
Eric Strobl
Frank Walsh

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Abstract

We estimate the wage penalty associated with working in the South African informal sector. To this end we use a rich data set on non-self-employed males that allows one to accurately distinguish workers employed in the informal sector from those employed in the formal sector and link individuals over time. Implementing various econometric approaches we find that there is a gross wage penalty of a little over 18% for working in the informal sector. However, once we reduce our sample to a group for which we can reasonably calculate earnings net of taxes and control for time-invariant unobservables, the wage penalty disappears.

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File URL: http://www.journals.uchicago.edu/cgi-bin/resolve?id=doi:10.1086/533550
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Article provided by University of Chicago Press in its journal Economic Development and Cultural Change.

Volume (Year): 56 (2008)
Issue (Month): ()
Pages: 683-710
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Handle: RePEc:ucp:ecdecc:v:56:y:2008:p:683-710

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  4. Amaral, Pedro S. & Quintin, Erwan, 2006. "A competitive model of the informal sector," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1541-1553, October. [Downloadable!] (restricted)
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  6. Marcouiller, Douglas & Ruiz de Castilla, Veronica & Woodruff, Christopher, 1997. "Formal Measures of the Informal-Sector Wage Gap in Mexico, El Salvador, and Peru," Economic Development and Cultural Change, University of Chicago Press, vol. 45(2), pages 367-92, January.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bargain, Olivier & Kwenda, Prudence, 2009. "The Informal Sector Wage Gap: New Evidence Using Quantile Estimations on Panel Data," IZA Discussion Papers 4286, Institute for the Study of Labor (IZA). [Downloadable!]
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  2. Hartmut Lehmann & Norberto Pignatti, 2007. "Informal Employment Relationships and Labor Market Segmentation in Transition Economies: Evidence from Ukraine," IZA Discussion Papers 3269, Institute for the Study of Labor (IZA). [Downloadable!]
  3. Hartmut Lehmann & Norberto Pignatti, 2008. "Informal Employment Relationships and Labor Market Segmentation in Transition Economies: Evidence from Ukraine," ESCIRRU Working Papers 3, DIW Berlin, German Institute for Economic Research. [Downloadable!]
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