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Determinants of Informal Sector Labour Demand: An Application of Alternative Methodological Approaches to South Western States of Nigeria


  • Folawewo, A. O.


Informal sector labour demand is analysed using a matched employer-employee data set obtained from a survey of informal enterprises in South-western Nigeria. Two different methodological approaches are used: conventional Ordinary Least Squares (OLS) and Instrumental Variable (IV) estimation techniques; and a Probit model is estimated to determine the probability of employees’ absorption by firms. While the former shows that informal sector’s labour demand is subject to firms’ optimisation behaviour, the latter indicates that labour demand decision is based on employers’ preference for discrimination. The paper argues that the importance of different factors in the determination of informal sector labour demand depends on the methodological approach.

Suggested Citation

  • Folawewo, A. O., 2006. "Determinants of Informal Sector Labour Demand: An Application of Alternative Methodological Approaches to South Western States of Nigeria," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(2).
  • Handle: RePEc:eaa:aeinde:v:6:y:2006:i:2_10

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    References listed on IDEAS

    1. Gupta, Nabanita Datta, 1993. "Probabilities of Job Choice and Employer Selection and Male-Female Occupational Differences," American Economic Review, American Economic Association, vol. 83(2), pages 57-61, May.
    2. Francisco Carneiro & Andrew Henley, 1998. "Wage determination in Brazil: The growth of union bargaining power and informal employment," Journal of Development Studies, Taylor & Francis Journals, vol. 34(4), pages 117-138.
    3. Louis N. Christofides & Andrew J. Oswald, 1992. "Real Wage Determination and Rent-Sharing in Collective Bargaining Agreements," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 985-1002.
    4. Levine, David I, 1992. "Can Wage Increases Pay for Themselves? Tests with a Production Function," Economic Journal, Royal Economic Society, vol. 102(414), pages 1102-1115, September.
    5. Cole, William E. & Fayissa, Bichaka, 1991. "The urban subsistence labor force: Toward a policy-oriented and empirically accessible taxonomy," World Development, Elsevier, vol. 19(7), pages 779-789, July.
    6. David G. Blanchflower & Andrew J. Oswald & Peter Sanfey, 1996. "Wages, Profits, and Rent-Sharing," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 227-251.
    7. Rama, Martin, 1998. "How Bad Is Unemployment in Tunisia? Assessing Labor Market Efficiency in a Developing Country," World Bank Research Observer, World Bank Group, vol. 13(1), pages 59-77, February.
    8. Takao FUKUCHI, 1998. "A Simulation Analysis Of The Urban Informal Sector," The Developing Economies, Institute of Developing Economies, vol. 36(3), pages 225-256, September.
    9. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-142, March.
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    1. repec:rom:mrpase:v:9:y:2017:i:2:p:27-46 is not listed on IDEAS

    More about this item


    Labour Demand; Urban; Informal Sector; Waged-Labour; Efficiency Wage Model.;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure


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