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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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Cited by:
  1. Badi H. Baltagi & Yusuf Soner Baskaya & Timur Hulagu, 2013. "How different are the wage curves for formal and informal workers? Evidence from Turkey," Papers in Regional Science, Wiley Blackwell, vol. 92(2), pages 271-283, 06.
  2. Nancy Daza & Luis Fernando Gamboa, 2013. "Informal-formal wage gaps in Colombia," Working Papers 301, ECINEQ, Society for the Study of Economic Inequality.
  3. Aysit Tansel & Elif Oznur Kan, 2012. "The Formal/Informal Employment Earnings Gap: Evidence From Turkey," ERC Working Papers 1204, ERC - Economic Research Center, Middle East Technical University, revised Apr 2012.

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