The heterogeneity of informal employment and segmentation in the Turkish labour market

This paper aims at investigating the heterogeneity of informal employment on the Turkish labour market. To circumvent the constraints imposed by the traditional parametric methods, finite mixture models are estimated in order to identify the optimal number of segments within the informal employment and their respective returns to individual characteristics. In particular, it sheds light on the potential voluntary nature of informal employment by comparing the estimated probabilities of segment membership with the theoretical probabilities that would result from a competitive labour market under the hypothesis of income maximization by workers. Results show that the classical self-employed versus informal wage-workers divide is not the best split of informal employment. Furthermore, the two estimated informal employment segments are both less desirable than formal employment. Thus, the hypothesis of labour-market segmentation, even after taking informal-sector heterogeneity into account, seems to hold, supporting the traditional dualistic view of informal employment in the Turkish context.