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The Effect of Unobservables on Labour Supply Decisions: The formal and informal sector during transition

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  • Ceema Zahra Namazie
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    Abstract

    The transition from a command economy in the FSU resulted in increased activities in the informal sector. However despite prevalent delays in wage payments many workers were still observed to be working full-time in the formal sector. Here a model of workers' labour supply decisions incorporates unobservable features of informal activities in both sectors; namely unofficial payments within the formal sector and stigma associated with the informal sector. These extensions result in non-trivial changes to workers' reservation wage conditions and reconcile the unexpected outcomes of workers' labour supply decisions. A limited empirical analysis of Kyrgyz data, for 1993 and 1996, provides support for the implications of this framework.

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    File URL: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper72.pdf
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    Bibliographic Info

    Paper provided by Centre for Analysis of Social Exclusion, LSE in its series CASE Papers with number case72.

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    Date of creation: Jun 2003
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    Handle: RePEc:cep:sticas:case72

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    Web page: http://sticerd.lse.ac.uk/case/_new/publications/default.asp

    Related research

    Keywords: transition; informal activities; labour supply decisions;

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    1. Paxson, Christina H & Sicherman, Nachum, 1996. "The Dynamics of Dual Job Holding and Job Mobility," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 357-93, July.
    2. Rein,Martin & Friedman,Barry L. & Wörgötter,Andreas (ed.), 1997. "Enterprise and Social Benefits after Communism," Cambridge Books, Cambridge University Press, number 9780521584036, April.
    3. Smith Conway, Karen & Kimmel, Jean, 1998. "Male labor supply estimates and the decision to moonlight," Labour Economics, Elsevier, vol. 5(2), pages 135-166, June.
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