Skill differentiation between formal and informal employment
Purpose - The purpose of this paper is to examine the existence of skill differentiation between formal and informal labor markets. Design/methodology/approach - First, a theoretical model is developed under the assumption that concealment of production is increasingly costly for informal firms. Second, using data on the Brazilian self-employed economy, two methods are utilized to compare earnings in the formal versus the informal economy: propensity score and instrumental variable (IV) methods. For the IV estimations, state-level variables are used as instruments for individual's decisions. In addition, the effect of schooling on formality choice is analyzed. Findings - The theoretical model implies that more productive firms tend to operate formally and the proportion of workers employed by formal firms is larger for higher skilled workers. In the empirical analysis, it is found that formal firms are more productive than informal firms, controlling for workers' characteristics, and that higher workers' skill increase the probability of formal operation, as predicted by the theoretical model. Originality/value - The paper provides an original theoretical model of skill differentiation in labor markets and empirically evaluates the implications of the model.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 36 (2009)
Issue (Month): 5 (September)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://www.emeraldinsight.com/jes.htm Email:
When requesting a correction, please mention this item's handle: RePEc:eme:jespps:v:36:y:2009:i:5:p:461-480. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman)
If references are entirely missing, you can add them using this form.