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Transitions to and from formal employment and income dynamics: Evidence from developing economies

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  • Mariya Aleksynska
  • Justina La
  • Thomas Manfredi

Abstract

Using panel data for Indonesia, Malawi, Peru and South Africa, this paper investigates the relationship between transitions to formal employment and workers’ labour income. It shows that transiting from informal to formal employment increases the probability of improving workers’ labour income in both absolute and relative terms. However, income gains from formalisation do not accrue to all workers equally. Switching to formal employment has the greatest potential to improve the labour income of the richest workers. The chances of improving the labour income of the poorest workers through formalisation are slim. Transitions between formal and informal employment affect income gains and losses differently for men and women, older and younger workers, and workers with different levels of schooling. The effects of labour market transitions on income changes are considerably greater in magnitude than other life events such as a births, separation, or death of a partner or spouse. À partir de données de panel pour l’Afrique du Sud, l’Indonésie, le Malawi et le Pérou, ce document de travail étudie la relation entre les transitions de et vers l’emploi formel et le revenu des travailleurs. Il démontre que le passage d’un emploi informel à un emploi formel augmente la probabilité d’améliorer le revenu des travailleurs en termes absolus et relatifs. Néanmoins, les gains de revenus ne sont pas distribués de la même manière : le passage à l’emploi formel bénéficie plus aux travailleurs qui ont déjà les revenus les plus élevés ; en revanche, les travailleurs les plus pauvres ont moins de chances d’améliorer leurs revenus. Les gains et les pertes de revenus diffèrent également selon le genre, l’âge et le niveau d’éducation. Les transitions sur le marché du travail ont des effets considérablement plus importants sur les revenus que les autres événements de la vie tels que les naissances, les séparations ou le décès d’un partenaire ou d’un conjoint.

Suggested Citation

  • Mariya Aleksynska & Justina La & Thomas Manfredi, 2023. "Transitions to and from formal employment and income dynamics: Evidence from developing economies," OECD Development Centre Working Papers 349, OECD Publishing.
    • Handle: RePEc:oec:devaaa:349-en
    DOI: 10.1787/bc186b3b-en
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    More about this item

    Keywords

    informal employment; informality; labour market transitions; poverty;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market

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