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The Formal Sector Wage Premium and Firm Size

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Author Info
Eliane Badaoui () (THEMA, Université de Cergy-Pontoise)
Eric Strobl () (Ecole Polytechnique Paris and IZA)
Frank Walsh () (University College Dublin)

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Abstract

We show theoretically that when larger firms pay higher wages and are more likely to be caught defaulting on labour taxes, then large high-wage firms will be in the formal sector and small low-wage firms will be in the informal sector. The formal sector wage premium is thus just a firm size wage differential. Using data from the South African labour force survey we illustrate that firm size is indeed the key variable determining whether a formal sector premium exists.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3145.

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Length: 31 pages
Date of creation: Nov 2007
Date of revision:
Handle: RePEc:iza:izadps:dp3145

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Related research
Keywords: informal sector; wage premium; firm size;

Find related papers by JEL classification:
J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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References listed on IDEAS
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.:
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    Other versions:
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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!]
    Other versions:
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