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Self-Employment, Wage Employment and Informality in a Developing Economy

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Author Info

  • Bennett, John

    ()
    (Brunel University)

  • Rablen, Matthew D.

    ()
    (Brunel University)

Abstract

We construct a simple model incorporating various urban labour market phenomena obtaining in developing economies. Our initial formulation assumes an integrated labour market and allows for entrepreneurship, self-employment and wage employment. We then introduce labour market segmentation. In equilibrium voluntary and involuntary self-employment, formal and informal wage employment, and formal and informal entrepreneurship may all coexist. We illustrate the model by an example calibrated on Latin American data, examining individual labour market transitions and implications of education/training and labour market policies. To diminish informality, cutting the costs of formality is more effective than raising those of informality.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6406.

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Length: 38 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6406

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Keywords: self-employment; wage employment; informality;

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References

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  1. Nick Bloom & Ben Eifert & Aprajit Mahajan & David McKenzie & John Roberts, 2010. "Does management matter?: evidence from India," LSE Research Online Documents on Economics 36366, London School of Economics and Political Science, LSE Library.
  2. Rauch, James E., 1991. "Modelling the informal sector formally," Journal of Development Economics, Elsevier, vol. 35(1), pages 33-47, January.
  3. Almeida, Rita & Carneiro, Pedro, 2009. "Enforcement of labor regulation and firm size," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 28-46, March.
  4. Aureo de Paula & Jose A. Scheinkman, 2006. "The Informal Sector," Levine's Bibliography 122247000000001030, UCLA Department of Economics.
  5. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2008. "Who are the microenterprise owners ? Evidence from Sri Lanka on Tokman v. de Soto," Policy Research Working Paper Series 4635, The World Bank.
  6. Guillermo E. Perry & William F. Maloney & Omar S. Arias & Pablo Fajnzylber & Andrew D. Mason & Jaime Saavedra-Chanduvi, 2007. "Informality : Exit and Exclusion," World Bank Publications, The World Bank, number 6730.
  7. James Albrecht & Lucas Navarro & Susan Vroman, 2009. "The Effects of Labour Market Policies in an Economy with an Informal Sector," Economic Journal, Royal Economic Society, vol. 119(539), pages 1105-1129, 07.
  8. Eliane El Badaoui & Eric Strobl & Frank Walsh, 2008. "Is There an Informal Employment Wage Penalty? Evidence from South Africa," Economic Development and Cultural Change, University of Chicago Press, vol. 56, pages 683-710.
  9. Bosch, Mariano & Maloney, William, 2007. "Comparative analysis of labor market dynamics using markov processes : an application to informality," Policy Research Working Paper Series 4429, The World Bank.
  10. Fiess, Norbert M. & Fugazza, Marco & Maloney, William F., 2010. "Informal self-employment and macroeconomic fluctuations," Journal of Development Economics, Elsevier, vol. 91(2), pages 211-226, March.
  11. Sebastian Galiani & Federico Weinschelbaum, 2012. "Modeling Informality Formally: Households And Firms," Economic Inquiry, Western Economic Association International, vol. 50(3), pages 821-838, 07.
  12. Banerji, Arup & Jain, Sanjay, 2007. "Quality dualism," Journal of Development Economics, Elsevier, vol. 84(1), pages 234-250, September.
  13. Fortin, Bernard & Marceau, Nicolas & Savard, Luc, 1997. "Taxation, wage controls and the informal sector," Journal of Public Economics, Elsevier, vol. 66(2), pages 293-312, November.
  14. Douglas Gollin, 2001. "Nobody's Business but My Own: Self Employment and Small Enterprise in Economic Development," Center for Development Economics 172, Department of Economics, Williams College.
  15. Amaral, Pedro S. & Quintin, Erwan, 2006. "A competitive model of the informal sector," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1541-1553, October.
  16. Aureo de Paula & Jose A. Scheinkman, 2007. "The Informal Sector, Third Version," PIER Working Paper Archive 08-018, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 21 May 2008.
  17. Loayza, Norman V. & Rigolini, Jamele, 2006. "Informality trends and cycles," Policy Research Working Paper Series 4078, The World Bank.
  18. Antunes, Antonio R. & Cavalcanti, Tiago V. de V., 2007. "Start up costs, limited enforcement, and the hidden economy," European Economic Review, Elsevier, vol. 51(1), pages 203-224, January.
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Cited by:
  1. Junankar, Pramod N. (Raja) & Shonchoy, Abu, 2013. "The Informal Labour Market in India: Transitory or Permanent Employment for Migrants?," IZA Discussion Papers 7587, Institute for the Study of Labor (IZA).

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