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Informal employment in Bolivia: A lost proposition?

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  • Maria Tannuri-Pianto
  • Donald Pianto

Abstract

We study participation and relative earnings in the formal, informal, and self-employed sectors in Bolivia. We estimate quantile earnings equations corrected for self-selectivity to address potential biases in the estimates of relative earnings gaps due to the endogeneity of sector participation. Selectivity is significant in all three sectors for all three years studied. The benefits of being more formal like at low quantiles of the informal sector vanish from 1997 to 2002 as the availability of formal jobs decreases. The human capital model is very well fit for 1993 and 1997. In 2002 it is best fit for the formal sector where education and experience explain much of a worker's earnings, and worst fit for the self-employed sector where education does not play a role and experience is only important at high quantiles. We exploit the semi-parametric nature of quantile regression to link the conditional returns to worker characteristics, obtained from the quantile regressions, with the poverty status of households to determine the extent to which unobserved earnings determinants interact with observed characteristics to penalize non-formal workers in poor households. We find that females in non-formal employment suffer the largest penalties. In unreported results (available from the authors upon request) we perform a counterfactual analysis of conditional earnings by sector, decomposing the earnings gaps into differences in endowments of skills and differences in returns to skills. The results suggest segmentation between the formal and informal sector at the lowest conditional quantiles, while higher productivity workers seem to have a choice of which sector to work in

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 149.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:latm04:149

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Keywords: earnings gaps; sample selection; quantile regression; multiple-choice models.;

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  1. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
  2. Newey, W.K. & Powell, J.L. & Walker, J.R., 1990. "Semiparametric Estimation Of Selection Models: Some Empirical Results," Working papers 9001, Wisconsin Madison - Social Systems.
  3. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July.
  4. Moshe Buchinsky, 1998. "The dynamics of changes in the female wage distribution in the USA: a quantile regression approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(1), pages 1-30.
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Cited by:
  1. Olivier Bargain & Prudence Kwenda, 2009. "The Informal Sector Wage Gap - New Evidence Using Quantile Estimations on Panel Data," Working Papers 200905, School Of Economics, University College Dublin.
  2. Guillermo E. Perry & Omar S. Arias & J. Humberto López & William F. Maloney & Luis Servén, 2006. "Poverty Reduction and Growth : Virtuous and Vicious Circles," World Bank Publications, The World Bank, number 6997, July.
  3. Paula Herrera & Enrique López-Bazo & Elisabet Motellón, 2013. "“Double Penalty in Returns to Education: Informality and Educational Mismatch in the Colombian Labour market”," IREA Working Papers 201307, University of Barcelona, Research Institute of Applied Economics, revised May 2013.
  4. Dileni Gunewardena & Darshi Abeyrathna & Amalie Ellagala & Kamani Rajakaruna & Shobana Rajendran, 2008. "Glass Ceilings, Sticky Floors or Sticky Doors? A Quantile Regression Approach to Exploring Gender Wage Gaps in Sri Lanka," Working Papers PMMA 2008-04, PEP-PMMA.
  5. Stephan Klasen & Melanie Grosse & Rainer Thiele & Jann Lay & Julius Spatz & Manfred Wiebelt, 2004. "Operationalizing Pro-Poor Growth - Country Case Study: Bolivia," Ibero America Institute for Econ. Research (IAI) Discussion Papers 101, Ibero-America Institute for Economic Research.
  6. 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.
  7. Alejandro Arrieta & Ariadna García Prado & Giota Panopoulou, 2012. "Enrolling the Self-Employed in Mandatory Health Insurance in Colombia: are we missing other factors?," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 1213, Departamento de Economía - Universidad Pública de Navarra.
  8. 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.
  9. World Bank, 2009. "Gender in Bolivian Production : Reducing Differences in Formality and Productivity of Firms," World Bank Publications, The World Bank, number 2669, July.
  10. Arias, Omar & Blom, Andreas & Bosch, Mariano & Cunningham, Wendy & Fiszbein, Ariel & Lopez Acevedo, Gladys & Maloney, William & Saavedra, Jaime & Sanchez-Paramo, Carolina & Santamaria, Mauricio & Siga, 2005. "Pending issues in protection, productivity growth, and poverty reduction," Policy Research Working Paper Series 3799, The World Bank.
  11. World Bank, 2009. "Increasing Formality and Productivity of Bolivian Firms," World Bank Publications, The World Bank, number 2675, July.

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