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Informal versus Formal: A Panel Data Analysis of Earnings Gaps in Madagascar

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  • Nordman, Christophe Jalil
  • Rakotomanana, Faly
  • Roubaud, François

Abstract

In spite of its predominant economic weight in developing countries, little is known about informal sector income dynamics vis-à-vis the formal sector. Some works have been done in this field using household surveys, but they only consider some emerging Latin American countries (Argentina, Brazil, Colombia and Mexico; Gong et al., 2004; Perry et al., 2007; Bargain and Kwenda, 2011) and more recently South Africa, Ghana and Tanzania for Africa (Falco et al., 2010) and Vietnam for Asia (Nguyen et al., 2011). As a matter of consequence, there is still no way to generalize the (diverging) results to very poor part of the developing world. Taking advantage of the rich 1-2-3 Surveys dataset in Madagascar, in particular its four waves panel data (2000, 2001, 2003 and 2004), we assess the magnitude of various formal/informal sector earnings gaps while addressing heterogeneity issues at three different levels: the worker, the job (wage employment vs. selfemployment) and the earnings distribution. The questions asked are the following: Is there an informal sector job earnings penalty? Do some informal sector jobs provide pecuniary premiums? Which ones? Do possible gaps vary along the earnings distribution? Standard earnings equations are estimated at the mean and at various conditional quantiles of the earnings distribution. In particular, we estimate fixed effects quantile regressions to control for unobserved individual characteristics, focusing particularly on heterogeneity within both the formal and informal sector categories. Our results suggest that the informal sector earnings gap highly depends on the workers’ job status and on their relative position in the earnings distribution. Penalties may in some cases turn into premiums. By comparing our results with studies in other developing countries, we draw conclusions highlighting the Madagascar’s labour market specificity.

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Bibliographic Info

Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/10601.

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Date of creation: 2012
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Publication status: Published in DIAL Documents de travail, 2012
Handle: RePEc:dau:papers:123456789/10601

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Keywords: informal employment; earnings gap; transition matrix; quantile regressions; panel data; Madagascar;

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References

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  1. Maloney, William F, 1999. "Does Informality Imply Segmentation in Urban Labor Markets? Evidence from Sectoral Transitions in Mexico," World Bank Economic Review, World Bank Group, vol. 13(2), pages 275-302, May.
  2. Roubaud, François & Nordman, Christophe Jalil & Nguyen, Huu Chi, 2013. "Who Suffers the Penalty? A Panel Data Analysis of Earnings Gaps in Vietnam," Economics Papers from University Paris Dauphine 123456789/12321, Paris Dauphine University.
  3. Cling, Jean-Pierre & Razafindrakoto, Mireille & Roubaud, Francois, 2005. "Export processing zones in Madagascar: a success story under threat?," World Development, Elsevier, vol. 33(5), pages 785-803, May.
  4. Koenker, Roger, 2004. "Quantile regression for longitudinal data," Journal of Multivariate Analysis, Elsevier, vol. 91(1), pages 74-89, October.
  5. Paolo Falco & Andrew Kerr & Neil Rankin & Justin Sandefur & Francis Teal, 2010. "The Returns to formality and Informality in Urban Africa," CSAE Working Paper Series 2010-03, Centre for the Study of African Economies, University of Oxford.
  6. Roubaud, François & Razafindrakoto, Mireille & Cling, Jean-Pierre, 2009. "Export Processing Zones in Madagascar: the impact of the dismantling of clothing quotas on employment and labour standards," Economics Papers from University Paris Dauphine 123456789/4336, Paris Dauphine University.
  7. Nordman, Christophe J. & Robilliard, Anne-Sophie & Roubaud, François, 2011. "Gender and ethnic earnings gaps in seven West African cities," Labour Economics, Elsevier, vol. 18(S1), pages S132-S145.
  8. Glick, Peter & Roubaud, François, 2006. "Export Processing Zone Expansion in Madagascar: What are the Labor Market and Gender Impacts?," Economics Papers from University Paris Dauphine 123456789/4457, Paris Dauphine University.
  9. Christophe J. Nordman & François-Charles Wolff, 2009. "Gender differences in pay in African manufacturing firms," Working Papers hal-00421227, HAL.
  10. Olivier Bargain & Prudence Kwenda, 2010. "Is Informality Bad? - Evidence from Brazil, Mexico and South Africa," Working Papers 201003, School Of Economics, University College Dublin.
  11. Peter Glick & François Roubaud, 2006. "Export Processing Zone Expansion in Madagascar: What are the Labour Market and Gender Impacts?," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 15(4), pages 722-756, December.
  12. Razafindrakoto, Mireille & Roubaud, François & Torelli, Constance, 2009. "Measuring the informal sector and informal employment: the experience drawn from 1-2-3 surveys in African countries," Economics Papers from University Paris Dauphine 123456789/10627, Paris Dauphine University.
  13. Michael Grimm & Jann Lay & François Roubaud & Julia Vaillant, 2011. "Informal Sector Dynamics In Times Of Fragile Growth: The Case Of Madagascar," Working Papers DT/2011/10, DIAL (Développement, Institutions et Mondialisation).
  14. Gong, Xiaodong & van Soest, Arthur & Villagomez, Elizabeth, 2000. "Mobility in the Urban Labor Market: A Panel Data Analysis for Mexico," IZA Discussion Papers 213, Institute for the Study of Labor (IZA).
  15. Fernández, Rosa M. & Nordman, Christophe J., 2009. "Are there pecuniary compensations for working conditions?," Labour Economics, Elsevier, vol. 16(2), pages 194-207, April.
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  17. Ivan A. Canay, 2011. "A simple approach to quantile regression for panel data," Econometrics Journal, Royal Economic Society, vol. 14(3), pages 368-386, October.
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Cited by:
  1. María del Pilar Casal & Bradford L. Barham, 2013. "Women’s Mobility in the Argentine Labour Market," Económica, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 59, pages 88-125, January-D.
  2. Philippe De Vreyer & François Roubaud, 2013. "Urban Labor Markets in Sub-Saharan Africa," World Bank Publications, The World Bank, number 15808, October.

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