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

  • Douglas Marcouiller, S.J.

    ()

    (Boston College)

  • Veronica Ruiz de Castilla

    (University of Texas-Austin)

  • Christopher Woodruff

    (University of California-San Diego)

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.

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File URL: http://fmwww.bc.edu/EC-P/wp294.pdf
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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 294..

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Length: 30 pages
Date of creation: Mar 1995
Date of revision:
Publication status: published, Economic Development and Cultural Change, 1997, 45, 367-392.
Handle: RePEc:boc:bocoec:294
Contact details of provider: Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA
Phone: 617-552-3670
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Web page: http://fmwww.bc.edu/EC/
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  1. Telles, Edward E, 1993. "Urban Labor Market Segmentation and Income in Brazil," Economic Development and Cultural Change, University of Chicago Press, vol. 41(2), pages 231-49, January.
  2. Mazumdar, Dipak, 1983. "Segmented Labor Markets in LDCs," American Economic Review, American Economic Association, vol. 73(2), pages 254-59, May.
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  4. Oaxaca, Ronald L. & Ransom, Michael R., 1994. "On discrimination and the decomposition of wage differentials," Journal of Econometrics, Elsevier, vol. 61(1), pages 5-21, March.
  5. 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.
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  7. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-59, October.
  8. Magnac, Th, 1991. "Segmented or Competitive Labor Markets," Econometrica, Econometric Society, vol. 59(1), pages 165-87, January.
  9. Mezzera J, 1990. "Informal sector, as in PREALC," ILO Working Papers 278800, International Labour Organization.
  10. Fields, Gary S., 1975. "Rural-urban migration, urban unemployment and underemployment, and job-search activity in LDCs," Journal of Development Economics, Elsevier, vol. 2(2), pages 165-187, June.
  11. Tokman, Victor E., 1989. "Policies for a heterogeneous informal sector in Latin America," World Development, Elsevier, vol. 17(7), pages 1067-1076, July.
  12. Marcouiller, Douglas & Young, Leslie, 1995. "The Black Hole of Graft: The Predatory State and the Informal Economy," American Economic Review, American Economic Association, vol. 85(3), pages 630-46, June.
  13. James J. Heckman & V. Joseph Hotz, 1986. "An Investigation of the Labor Market Earnings of Panamanian Males Evaluating the Sources of Inequality," Journal of Human Resources, University of Wisconsin Press, vol. 21(4), pages 507-542.
  14. Irwin Bernhardt, 1994. "Comparative Advantage in Self-Employment and Paid Work," Canadian Journal of Economics, Canadian Economics Association, vol. 27(2), pages 273-89, May.
  15. Moock, P. & Musgrove, P. & Stelcner, M., 1990. "Education And Earnings In Peru'S Informal Nonfarm Family Enterprises," Papers 64, World Bank - Living Standards Measurement.
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