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Competitive and Segmented Informal Labor Markets

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  • Launov, Andrey
  • Günther, Isabel

Abstract

It has recently been argued that the informal sector in developing countries shows a dual structure, with part of the informal sector being competitive to the formal sector and part of the informal sector being the result of market segmentation. We formulate an econometric model to test this hypothesis. The model allows for sector multiplicity with unobserved sector affiliation in the informal sector and takes into account sample selection bias induced by the employment decision of individuals. An estimation of the model for the urban labor market in C^ote d'Ivoire shows that the informal labor market is indeed composed of two segments with both competitive as well as segmented employment. --

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Bibliographic Info

Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Berlin 2006 with number 16.

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Date of creation: 2006
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Handle: RePEc:zbw:gdec06:4739

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Keywords: informal labor market; segmentation; comparative advantage; selection bias; latent structure; finite mixture;

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  1. Magnac, Th, 1991. "Segmented or Competitive Labor Markets," Econometrica, Econometric Society, vol. 59(1), pages 165-87, January.
  2. Olsen, Randall J, 1980. "A Least Squares Correction for Selectivity Bias," Econometrica, Econometric Society, vol. 48(7), pages 1815-20, November.
  3. Maloney, William, 2003. "Informality revisited," Policy Research Working Paper Series 2965, The World Bank.
  4. Fields, Gary S., 2005. "A guide to multisector labor market models," Social Protection Discussion Papers 32547, The World Bank.
  5. Cunningham, Wendy V. & Maloney, William F., 1998. "Heterogeneity among Mexico's micro-enterprises - an application of factor and cluster analysis," Policy Research Working Paper Series 1999, The World Bank.
  6. Murphy, Kevin M & Topel, Robert H, 2002. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 88-97, January.
  7. Lee, Lung-Fei, 1983. "Generalized Econometric Models with Selectivity," Econometrica, Econometric Society, vol. 51(2), pages 507-12, March.
  8. Gindling, T H, 1991. "Labor Market Segmentation and the Determination of Wages in the Public, Private-Formal, and Informal Sectors in San Jose, Costa Rica," Economic Development and Cultural Change, University of Chicago Press, vol. 39(3), pages 584-605, April.
  9. Stiglitz, Joseph E, 1976. "The Efficiency Wage Hypothesis, Surplus Labour, and the Distribution of Income in L.D.C.s," Oxford Economic Papers, Oxford University Press, vol. 28(2), pages 185-207, July.
  10. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
  11. Andrews, Donald W K, 1988. "Chi-Square Diagnostic Tests for Econometric Models: Theory," Econometrica, Econometric Society, vol. 56(6), pages 1419-53, November.
  12. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  13. William T. Dickens & Kevin Lang, 1985. "A Test of Dual Labor Market Theory," NBER Working Papers 1314, National Bureau of Economic Research, Inc.
  14. Heckman, James J & Sedlacek, Guilherme, 1985. "Heterogeneity, Aggregation, and Market Wage Functions: An Empirical Model of Self-selection in the Labor Market," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1077-1125, December.
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Cited by:
  1. Bargain, Olivier & Kwenda, Prudence, 2009. "The Informal Sector Wage Gap: New Evidence Using Quantile Estimations on Panel Data," IZA Discussion Papers 4286, Institute for the Study of Labor (IZA).
  2. Tamvada, Jagannadha Pawan, 2009. "Entrepreneurship and Welfare," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  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.
  4. Eliane El Badaoui & Eric Strobl & Frank Walsh, 2008. "Is There an Informal Employment Wage Penalty? Evidence from South Africa," Economic Development and Cultural Change, University of Chicago Press, vol. 56, pages 683-710.
  5. Falco, Paolo & Maloney, William F. & Rijkers, Bob & Sarrias, Mauricio, 2012. "Heterogeneity in subjective wellbeing : an application to occupational allocation in Africa," Policy Research Working Paper Series 6244, The World Bank.
  6. Olivier Bargain & Prudence Kwenda, 2010. "Is Informality Bad? - Evidence from Brazil, Mexico and South Africa," Working Papers 201003, School Of Economics, University College Dublin.
  7. Olivier Bargain & Prudence Kwenda, 2009. "The Informal Sector Wage Gap: New Evidence Using Quantile Regressions on Panel Data," CEDI Discussion Paper Series 09-06, Centre for Economic Development and Institutions(CEDI), Brunel University.
  8. Alex Coad & Jaganaddha Tamvada, 2012. "Firm growth and barriers to growth among small firms in India," Small Business Economics, Springer, vol. 39(2), pages 383-400, September.

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