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Comparative Advantage, Segmentation and Informal Earnings: A Marginal Treatment Effects Approach

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Author Info

  • Arias, Omar

    ()
    (World Bank)

  • Khamis, Melanie

    ()
    (Wesleyan University)

Abstract

This paper employs recently developed econometric models of marginal treatment effects to analyze the relevance of labor market comparative advantage and segmentation in the participation and earnings performance of workers in formal and informal jobs in Argentina. A novel household data set on informality and self-employment and information on labor inspections targeting informal work was collected for this purpose. We account for endogeneity and selectivity issues in our estimations. Our results offer evidence for both comparative advantage and segmentation. No significant differences between the earnings of formal salaried workers and the self-employed are found, once accounted for positive selection bias into formal work. This is consistent with labor market comparative advantage considerations. On the contrary, informal salaried employment carries significant earnings penalties, alongside negative selection bias and modest positive sorting. These results are more consistent with segmentation.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3916.

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Length: 64 pages
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:iza:izadps:dp3916

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Related research

Keywords: marginal treatment effects; occupational choice; segmentation; earnings; comparative advantage; informality; labor markets;

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Cited by:
  1. Giulietti, Corrado & Ning, Guangjie & Zimmermann, Klaus F, 2011. "Self-employment of rural-to-urban migrants in China," CEPR Discussion Papers 8473, C.E.P.R. Discussion Papers.
  2. Mónica Jiménez, 2013. "La informalidad laboral en el sector formal. Un análisis preliminar," Working Papers 10, Instituto de Estudios Laborales y del Desarrollo Económico (IELDE) - Universidad Nacional de Salta - Facultad de Ciencias Económicas, Jurídicas y Sociales.
  3. Olivier Bargain & Prudence Kwenda, 2009. "The Informal Sector Wage Gap: New Evidence Using Quantile Estimations on Panel Data," Working Papers 200916, Geary Institute, University College Dublin.
  4. Akay, Alpaslan & Khamis, Melanie, 2011. "The Persistence of Informality: Evidence from Panel Data," IZA Discussion Papers 6163, Institute for the Study of Labor (IZA).
  5. Olivier Bargain & Prudence Kwenda, 2010. "Is Informality Bad? - Evidence from Brazil, Mexico and South Africa," Working Papers 201003, School Of Economics, University College Dublin.

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