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Self-employment and labor turnover - cross-country evidence

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  • Maloney, William F.

Abstract

The author uses cross-country data from Latin America and OECD countries to test the predictions of a simple efficiency wage model (Krebs and Maloney 1998) about the share of the workforce in self-employment and the rate of labor turnover across the process of development and demographic transition. The model is supported, with numerous demographic, economic, and labor market institutions appearing as important determinants of both self-employment and turnover. Social security taxes on firms and barriers to firing workers appear to reduce the size of the formal sector, and barriers to firing do appear to reduce turnover. But the level of formal sector productivity, real interest rates, and education levels generally have a greater impact. A central lesson is that it is misleading to use the size of the informal self-employment sector and the rate of labor turnover as indicators of distortion or rigidity without first adjusting for these factors. Somewhat speculatively, the author offers adjusted measures that suggest that Latin American labor markets are not especially distorted and are about average in flexibility, with important exceptions. Central to the theoretical framework is the view that self-employment is a desirable destination for many salaried workers rather than the disadvantaged sector of a labor market segmented by union - or government - induced rigidities. To prevent the loss of investment in training to the informal sector, firms will pay above market-clearing"efficiency wages", in the process creating unemployment or segmentation that may cut across lines of formality.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2102.

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Date of creation: 30 Apr 1999
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Handle: RePEc:wbk:wbrwps:2102

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Keywords: Environmental Economics&Policies; Labor Policies; Economic Theory&Research; Banks&Banking Reform; Labor Management and Relations; Economic Theory&Research; Banks&Banking Reform; Labor Management and Relations; Labor Standards; Environmental Economics&Policies;

References

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  1. MacIsaac, Donna & Rama, Martin, 1997. "Determinants of Hourly Earnings in Ecuador: The Role of Labor Market Regulations," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 15(3), pages S136-65, July.
  2. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, American Economic Association, vol. 74(3), pages 433-44, June.
  3. Krebs, Tom & Maloney, William F., 1999. "Quitting and labor turnover : microeconomic evidence and macroeconomic consequences," Policy Research Working Paper Series 2068, The World Bank.
  4. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(5), pages 915-38, October.
  5. Gustavo Márquez & Carmen Pagés-Serra, 1998. "Ties That Bind: Employment Protection and Labor Market Outcomes in Latin America," IDB Publications 4098, Inter-American Development Bank.
  6. Fields, Gary S, 1994. "Changing Labor Market Conditions and Economic Development in Hong Kong, the Republic of Korea, Singapore, and Taiwan, China," World Bank Economic Review, World Bank Group, World Bank Group, vol. 8(3), pages 395-414, September.
  7. Funkhouser, Edward, 1998. "The importance of firm wage differentials in explaining hourly earnings variation in the large-scale sector of Guatemala," Journal of Development Economics, Elsevier, Elsevier, vol. 55(1), pages 115-131, February.
  8. Gustavo Maurício Gonzaga, 1996. "The effects of openness on industrial employment in Brazil," Textos para discussão, Department of Economics PUC-Rio (Brazil) 362, Department of Economics PUC-Rio (Brazil).
  9. Gonzalez, Patricio Aroca & Maloney, William F., 1999. "Logit analysis in a rotating panel context and an application to self-employment decisions," Policy Research Working Paper Series 2069, The World Bank.
  10. Stiglitz, Joseph E, 1974. "Alternative Theories of Wage Determination and Unemployment in LDC'S: The Labor Turnover Model," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 88(2), pages 194-227, May.
  11. Maloney, William F. & Pontual Ribeiro, Eduardo, 1999. "Efficiency wage and union effects in labor demand and wage structure in Mexico - An application of quantile analysis," Policy Research Working Paper Series 2131, The World Bank.
  12. Olivier Blanchard & Lawrence F. Katz, 1996. "What We Know and Do Not Know About the Natural Rate of Unemployment," NBER Working Papers 5822, National Bureau of Economic Research, Inc.
  13. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, Econometric Society, vol. 56(2), pages 259-93, March.
  14. Blanchard, Olivier & Jimeno, Juan F, 1995. "Structural Unemployment: Spain versus Portugal," American Economic Review, American Economic Association, American Economic Association, vol. 85(2), pages 212-18, May.
  15. Bell, Linda A, 1997. "The Impact of Minimum Wages in Mexico and Colombia," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 15(3), pages S102-35, July.
  16. Loayza, Norman V., 1996. "The economics of the informal sector: a simple model and some empirical evidence from Latin America," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 45(1), pages 129-162, December.
  17. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, Econometric Society, vol. 50(3), pages 649-70, May.
  18. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  19. Schaffner, Julie Anderson, 1998. "Premiums to employment in larger establishments: evidence from Peru," Journal of Development Economics, Elsevier, Elsevier, vol. 55(1), pages 81-113, February.
  20. Carmen Pagés-Serra & Gustavo Márquez, 1998. "Ties That Bind: Employment Protection and Labor Market Outcomes in Latin America," Research Department Publications, Inter-American Development Bank, Research Department 4118, Inter-American Development Bank, Research Department.
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Citations

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Cited by:
  1. Guillaume Destré & Valentine Henrard, 2004. "The determinants of occupational choice in Colombia : an empirical analysis," Cahiers de la Maison des Sciences Economiques, Université Panthéon-Sorbonne (Paris 1) bla04065a, Université Panthéon-Sorbonne (Paris 1).
  2. Mathan Satchi & Jonathan Temple, 2006. "Growth and labour markets in developing countries," CEDI Discussion Paper Series, Centre for Economic Development and Institutions(CEDI), Brunel University 06-12, Centre for Economic Development and Institutions(CEDI), Brunel University.
  3. Arias, Omar & Blom, Andreas & Bosch, Mariano & Cunningham, Wendy & Fiszbein, Ariel & Lopez Acevedo, Gladys & Maloney, William & Saavedra, Jaime & Sanchez-Paramo, Carolina & Santamaria, Mauricio & Siga, 2005. "Pending issues in protection, productivity growth, and poverty reduction," Policy Research Working Paper Series 3799, The World Bank.

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