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The Formal Sector Wage Premium and Firm Size

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  • El Badaoui, Eliane

    ()
    (University Paris Ouest-Nanterre)

  • Strobl, Eric

    ()
    (Ecole Polytechnique, Paris)

  • Walsh, Frank

    ()
    (University College Dublin)

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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Bibliographic 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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Keywords: informal sector; wage premium; firm size;

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Citations

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Cited by:
  1. Olivier Bargain & Prudence Kwenda, 2013. "The Informal Sector Wage Gap: New Evidence using Quantile Estimations on Panel Data," Working Papers, HAL halshs-00967324, HAL.
  2. Olivier Bargain & Eliane El Badaoui & Prudence Kwenda & Eric Strobl & Frank Walsh, 2012. "The Formal Sector Wage Premium and Firm Size for Self-employed Workers," Working Papers, School Of Economics, University College Dublin 201207, School Of Economics, University College Dublin.
  3. Meghir, Costas & Narita, Renata & Robin, Jean-Marc, 2012. "Wages and Informality in Developing Countries," Working Papers, Yale University, Department of Economics 109, Yale University, Department of Economics.
  4. 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).
  5. Simon COMMANDER & Natalia ISACHENKOVA & Yulia RODIONOVA, 2013. "Informal employment dynamics in Ukraine: An analytical model of informality in transition economies," International Labour Review, International Labour Organization, International Labour Organization, vol. 152(3-4), pages 445-467, December.
  6. Erol Taymaz, 2009. "Informality and Productivity: Productivity Differentials between Formal and Informal Firms in Turkey," ERC Working Papers, ERC - Economic Research Center, Middle East Technical University 0901, ERC - Economic Research Center, Middle East Technical University, revised Mar 2009.
  7. Olivier Bargain & Prudence Kwenda, 2013. "The Informal Sector Wage Gap: New Evidence using Quantile Estimations on Panel Data," AMSE Working Papers 1360, Aix-Marseille School of Economics, Marseille, France, revised Jun 2013.
  8. Olivier Bargain & Prudence Kwenda, 2009. "The Informal Sector Wage Gap: New Evidence Using Quantile Regressions on Panel Data," CEDI Discussion Paper Series, Centre for Economic Development and Institutions(CEDI), Brunel University 09-06, Centre for Economic Development and Institutions(CEDI), Brunel University.

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