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The Informal Sector Wage Gap: New Evidence Using Quantile Estimations on Panel Data

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  • Olivier Bargain

    (UCD Geary Institute)

  • Prudence Kwenda

    (University College Dublin)

Abstract

This paper provides new evidence on the wage gap between informal and formal salary workers in South Africa, Brazil and Mexico. We use rich datasets that allow us to define informality in a relatively comparable fashion across countries. We compute precise wage differentials by accounting for taxes paid in the formal sector. For each country, we analyze how the sector wage gap varies within groups, between groups and over time. To account for unobserved heterogeneity, we use large (unbalanced) panels to estimate fixed effects models at the mean and at different quantiles of the wage distribution. We find that unobserved heterogeneity explains a large part of the (conditional) wage gap. The remaining informal sector wage penalty is large in the lower part of the distribution but almost disappears at the top. The penalty primarily concerns young workers and is found to be procyclical. We carefully investigate the robustness of these results and discuss their policy implications as well as regularities across countries.

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Bibliographic Info

Paper provided by Geary Institute, University College Dublin in its series Working Papers with number 200916.

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Length: 27 pages
Date of creation: 10 Jun 2009
Date of revision:
Handle: RePEc:ucd:wpaper:200916

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Keywords: wage gap; informal sector; quantile regression; fixed effects model; selection;

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Citations

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Cited by:
  1. Aysit Tansel & Elif Oznur Kan, 2012. "The Formal/Informal Employment Earnings Gap: Evidence from Turkey," Koç University-TUSIAD Economic Research Forum Working Papers 1210, Koc University-TUSIAD Economic Research Forum.
  2. Nadine Levratto & Aziza Garsaa & Luc Tessier, 2013. "La Corse est-elle soluble dans le modèle méditerranéen ?," Working Papers hal-00842059, HAL.
  3. Maria Manuel Campos & Mário Centeno, 2012. "Public-private wage gaps in the period prior to the adoption of the euro: an application based on longitudinal data," Working Papers w201201, Banco de Portugal, Economics and Research Department.
  4. John P. Haisken-DeNew & Maren M. Michaelsen, 2011. "Migration Magnet: The Role of Work Experience in Rural-Urban Wage Diff erentials in Mexico," Ruhr Economic Papers 0263, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  5. Nadine Levratto & Aziza Garsaa & Luc Tessier, 2013. "La Corse est-elle soluble dans le modèle méditerranéen ? Une analyse à partir d’une régression quantile sur données d’entreprises en panel entre 2004 et 2010. Is the Corsican economy a part ," EconomiX Working Papers 2013-20, University of Paris West - Nanterre la Défense, EconomiX.
  6. Arbex, Marcelo & Galvao, Antonio F. & Gomes, Fábio Augusto Reis, 2010. "Heterogeneity in the Returns to Education and Informal Activities," Insper Working Papers wpe_216, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.

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