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Informal-Formal Worker Wage Gap in Turkey : Evidence From A Semi-Parametric Approach

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  • Yusuf Soner Baskaya
  • Timur Hulagu

Abstract

Using individual level data from Turkstat Household Labor Force Survey for 2005-2009 period, we analyze whether there is a wage gap between formal and informal workers with comparable observable characteristics, where the formality of employment is defined with respect to individuals' registry status to compulsory Social Security System. We find that both standard Mincerian regressions and the propensity score matching exercises indicate a sizable formal employment wage premium in Turkey. This contrasts with earlier studies stating that findings on wage gap between formal and informal workers is not robust to estimation methodology. However, we find that the estimation methodology matters for the relative size of formal employment wage premium across demographic groups : While Mincerian regressions give similar estimates for formal-informal wage gap across males and females or old and young workers, the propensity score matching suggest that earning inequality due to differences in formality status is higher among females and young workers.

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Bibliographic Info

Paper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 1115.

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Date of creation: 2011
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Handle: RePEc:tcb:wpaper:1115

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Keywords: Formal/Informal Employment; Formal Employment Wage Premium; Propensity Score Matching;

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  1. Blanchflower, D. & Oswald, A., 1989. "The Wage Curve," Papers 340, London School of Economics - Centre for Labour Economics.
  2. Raul Ramos & Juan Carlos Duque & Jordi Suriñach, 2009. "Is The Wage Curve Formal Or Informal? Evidence For Colombia," IREA Working Papers 200918, University of Barcelona, Research Institute of Applied Economics, revised Jul 2009.
  3. Badi H. Baltagi & Yusuf Soner Baskaya & Timur Hulagu, 2011. "The Turkish Wage Curve : Evidence from the Household Labor Force Survey (Türkiye’de Ücret Egrisi: Hanehalki Isgücü Anketi’nden Bulgular)," Working Papers 1106, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
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  6. Mazumdar, Dipak, 1976. "The urban informal sector," World Development, Elsevier, vol. 4(8), pages 655-679, August.
  7. Maloney, William, 2003. "Informality revisited," Policy Research Working Paper Series 2965, The World Bank.
  8. Marco Caliendo & Sabine Kopeinig, 2008. "Some Practical Guidance For The Implementation Of Propensity Score Matching," Journal of Economic Surveys, Wiley Blackwell, vol. 22(1), pages 31-72, 02.
  9. Blanchflower, David G & Oswald, Andrew J, 1994. "Estimating a Wage Curve for Britain: 1973-90," Economic Journal, Royal Economic Society, vol. 104(426), pages 1025-43, September.
  10. James J. Heckman & V. Joseph Hotz, 1986. "An Investigation of the Labor Market Earnings of Panamanian Males Evaluating the Sources of Inequality," Journal of Human Resources, University of Wisconsin Press, vol. 21(4), pages 507-542.
  11. Pratap, Sangeeta & Quintin, Erwan, 2006. "Are labor markets segmented in developing countries? A semiparametric approach," European Economic Review, Elsevier, vol. 50(7), pages 1817-1841, October.
  12. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
  13. Mazumdar, Dipak, 1976. "The Rural-Urban Wage Gap, Migration, and the Shadow Wage," Oxford Economic Papers, Oxford University Press, vol. 28(3), pages 406-25, November.
  14. Aysit Tansel, 1999. "Formal Versus Informal Sector Choice of Wage Earners and their Wages in Turkey," Working Papers 9927, Economic Research Forum, revised Sep 1999.
  15. Heckman, James J. & Lalonde, Robert J. & Smith, Jeffrey A., 1999. "The economics and econometrics of active labor market programs," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 31, pages 1865-2097 Elsevier.
  16. LaLonde, Robert J, 1986. "Evaluating the Econometric Evaluations of Training Programs with Experimental Data," American Economic Review, American Economic Association, vol. 76(4), pages 604-20, September.
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Cited by:
  1. Nancy Daza & Luis Fernando Gamboa, 2013. "Informal-formal wage gaps in Colombia," Working Papers 301, ECINEQ, Society for the Study of Economic Inequality.
  2. Tansel, Aysit & Kan, Elif Oznur, 2012. "The formal/informal employment earnings gap: evidence from Turkey," MPRA Paper 38498, University Library of Munich, Germany.
  3. Baltagi, Badi H. & Baskaya, Yusuf Soner & Hulagu, Timur, 2012. "How Different Are the Wage Curves for Formal and Informal Workers? Evidence from Turkey," IZA Discussion Papers 6836, Institute for the Study of Labor (IZA).

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