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Is there an informal employment wage penalty? Evidence from South Africa

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  • Frank Walsh
  • Eliane Badaoui
  • Eric Strobl

Abstract

We estimate the wage penalty associated with working in the South African informal sector. To this end we use a rich data set on non-self employed males that allows one to accurately distinguish workers employed in the informal sector from those employed in the formal sector and link individuals over time. Implementing various econometric approaches we find that there is a gross wage penalty of a little over 18 per cent for working in the informal sector. However, once we reduce our sample to a group for which we can reasonably calculate earnings net of taxes and control for time invariant unobservables the wage penalty disappears.

Suggested Citation

  • Frank Walsh & Eliane Badaoui & Eric Strobl, 2008. "Is there an informal employment wage penalty? Evidence from South Africa," Open Access publications 10197/182, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:oapubs:10197/182
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    File URL: http://hdl.handle.net/10197/182
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    More about this item

    Keywords

    Informal sector; Wage penalty; South Africa; Informal sector (Economics)--South Africa; Wages--South Africa;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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