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Is There an Informal Employment Wage Penalty? Evidence from South Africa

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Author Info

  • El Badaoui, Eliane

    ()
    (University Paris Ouest-Nanterre)

  • Strobl, Eric

    ()
    (Ecole Polytechnique, Paris)

  • Walsh, Frank

    ()
    (University College Dublin)

Abstract

We estimate the wage penalty associated with working in the South African informal sector. To this end we use a rich data set on non-self employed males that allows one to accurately distinguish workers employed in the informal sector from those employed in the formal sector and link individuals over time. Implementing various econometric approaches we find that there is a gross wage penalty of a little over 18 per cent for working in the informal sector. However, once we reduce our sample to a group for which we can reasonably calculate earnings net of taxes and control for time invariant unobservables the wage penalty disappears.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3151.

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Length: 38 pages
Date of creation: Nov 2007
Date of revision:
Publication status: published in: Economic Development and Cultural Change, 2008, 56 (3), 683–710
Handle: RePEc:iza:izadps:dp3151

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Keywords: wage penalty; informal sector; South Africa;

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