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Formal Measures of the Informal Sector Wage Gap in Mexico, El Salvador, and Peru

Author

Listed:
  • Douglas Marcouiller, S.J.

    (Boston College)

  • Veronica Ruiz de Castilla

    (University of Texas-Austin)

  • Christopher Woodruff

    (University of California-San Diego)

Abstract

Using comparable micro-level data from three countries, we ask what type of person works in the informal sector and whether informal workers earn lower wages than observationally equivalent workers in the formal sector. The characteristics of informal workers are similar across countries. Surprisingly, when we control for these personal characteristics, we find a significant wage premium associated with formal employment in El Salvador and Peru but a premium associated with work in the informal sector in Mexico. A model of endogenous selection offers little help in explaining the differences in wage patterns. The research casts doubt on the received wisdom that the informal sector, always and everywhere, is a poorly-paid but easily- entered refuge for those who have no other employment opportunities.

Suggested Citation

  • Douglas Marcouiller, S.J. & Veronica Ruiz de Castilla & Christopher Woodruff, 1995. "Formal Measures of the Informal Sector Wage Gap in Mexico, El Salvador, and Peru," Boston College Working Papers in Economics 294., Boston College Department of Economics.
  • Handle: RePEc:boc:bocoec:294
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    More about this item

    Keywords

    Informal sector; wage differentials; Mexico; El Salvador; Peru;
    All these keywords.

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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