IDEAS home Printed from https://ideas.repec.org/p/boc/bocoec/294.html
   My bibliography  Save this paper

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
    as

    Download full text from publisher

    File URL: http://fmwww.bc.edu/EC-P/wp294.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. Irwin Bernhardt, 1994. "Comparative Advantage in Self-Employment and Paid Work," Canadian Journal of Economics, Canadian Economics Association, vol. 27(2), pages 273-289, May.
    3. 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 630-646, June.
    4. Dickens, William T & Lang, Kevin, 1985. "A Test of Dual Labor Market Theory," American Economic Review, American Economic Association, vol. 75(4), pages 792-805, September.
    5. King, E.M., 1990. "Does Education Pay In The Labor Market?: The Labor Force Participation, Occupation, And Earnings Of Peruvian Women," Papers 67, World Bank - Living Standards Measurement.
    6. Magnac, Th, 1991. "Segmented or Competitive Labor Markets," Econometrica, Econometric Society, vol. 59(1), pages 165-187, January.
    7. repec:cdl:ucsbec:23-94 is not listed on IDEAS
    8. Mazumdar, Dipak, 1983. "Segmented Labor Markets in LDCs," American Economic Review, American Economic Association, vol. 73(2), pages 254-259, May.
    9. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-1059, October.
    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. Mezzera J., 1990. "Informal sector, as in PREALC," ILO Working Papers 992788003402676, International Labour Organization.
    12. 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.
    13. Moock, P. & Musgrove, P. & Stelcner, M., 1990. "Education And Earnings In Peru'S Informal Nonfarm Family Enterprises," Papers 64, World Bank - Living Standards Measurement.
    14. 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 231-249, January.
    15. Tokman, Victor E., 1989. "Policies for a heterogeneous informal sector in Latin America," World Development, Elsevier, vol. 17(7), pages 1067-1076, July.
    16. 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.
    17. repec:ilo:ilowps:278800 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Aysit Tansel & Elif Oznur Acar, 2016. "The Formal/Informal Employment Earnings Gap: Evidence from Turkey," Research on Economic Inequality, in: John A. Bishop & Juan Gabriel Rodríguez (ed.), Inequality after the 20th Century: Papers from the Sixth ECINEQ Meeting, volume 24, pages 121-154, Emerald Publishing Ltd.
    2. Binnur Balkan & Semih Tumen, 2016. "Firm-Size Wage Gaps along the Formal-Informal Divide: Theory and Evidence," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 55(2), pages 235-266, April.
    3. Ada Ferrer-i-Carbonell & Klarita Gërxhani, 2011. "Financial Satisfaction and (in)formal Sector in a Transition Country," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 102(2), pages 315-331, June.
    4. Aysit Tansel & Halil Ibrahim Keskin & Zeynel Abidin Ozdemir, 2020. "Is there an informal employment wage penalty in Egypt? Evidence from quantile regression on panel data," Empirical Economics, Springer, vol. 58(6), pages 2949-2979, June.
    5. Olivier Bargain & Prudence Kwenda, 2014. "The Informal Sector Wage Gap: New Evidence Using Quantile Estimations on Panel Data," Economic Development and Cultural Change, University of Chicago Press, vol. 63(1), pages 117-153.
    6. Günther, Isabel & Launov, Andrey, 2012. "Informal employment in developing countries," Journal of Development Economics, Elsevier, vol. 97(1), pages 88-98.
    7. Gizem Akar & Binnur Balkan & Semih Tümen, 2013. "Overview of Firm-Size and Gender Pay Gaps in Turkey: The Role of Informal Employment," Ekonomi-tek - International Economics Journal, Turkish Economic Association, vol. 2(3), pages 1-21, September.
    8. Nacer-Eddine Hammouda & Ali Souag, 2012. "Segmentation du marché du travail en Algérie et la détermination du salaire dans les secteurs agricole, moderne non protégé et modernes protégé," Working Papers 699, Economic Research Forum, revised 2012.
    9. Aysit Tansel & Halil Ibrahim Keskin & Zeynel Abidin Ozdemir, 2015. "Is There an Informal Employment Wage Penalty in Egypt?," Working Papers 976, Economic Research Forum, revised Dec 2015.
    10. Assaad, Ragui, 1997. "Kinship ties, social networks, and segmented labor markets: evidence from the construction sector in Egypt," Journal of Development Economics, Elsevier, vol. 52(1), pages 1-30, February.
    11. Aysit Tansel & Halil Ibrahim Keskin & Zeynel Abidin Ozdemir, 2015. "Is There An Infırmal Employment Wage Penalty in Egypt?," ERC Working Papers 1508, ERC - Economic Research Center, Middle East Technical University, revised Sep 2015.
    12. Christofides, Louis N. & Pashardes, Panos, 2002. "Self/paid-employment, public/private sector selection, and wage differentials," Labour Economics, Elsevier, vol. 9(6), pages 737-762, December.
    13. Shahen, Mostafa E. & Kotani, Koji & Kakinaka, Makoto & Managi, Shunsuke, 2020. "Wage and labor mobility between public, formal private and informal private sectors in a developing country," Economic Analysis and Policy, Elsevier, vol. 68(C), pages 101-113.
    14. Pradhan, Menno & van Soest, Arthur, 1995. "Formal and informal sector employment in urban areas of Bolivia," Labour Economics, Elsevier, vol. 2(3), pages 275-297, September.
    15. Semih Tumen, 2015. "Skill Acquisition in the Informal Economy and Schooling Decisions: Evidence from Emerging Economies," LABOUR, CEIS, vol. 29(3), pages 270-290, September.
    16. Sangeeta Pratap & Erwan Quintin, 2001. "Are labor markets segmented in Argentina? a semiparametric approach," Center for Latin America Working Papers 0701, Federal Reserve Bank of Dallas.
    17. Günther, Isabel & Launov, Andrey, 2006. "Competitive and Segmented Informal Labor Markets," IZA Discussion Papers 2349, Institute of Labor Economics (IZA).
    18. Lall, Somik V. & Selod, Harris & Shalizi, Zmarak, 2006. "Rural-urban migration in developing countries : a survey of theoretical predictions and empirical findings," Policy Research Working Paper Series 3915, The World Bank.
    19. Soares, Rodrigo Reis & Gonzaga, Gustavo, 1999. "Determinação De Salários No Brasil: Dualidade Ou Não-Linearidade No Retorno À Educação?," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 19(2), November.
    20. Basch, Michael & Paredes-Molina, Ricardo D., 1996. "Are there dual labor markets in Chile?: empirical evidence," Journal of Development Economics, Elsevier, vol. 50(2), pages 297-312, August.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:boc:bocoec:294. 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: . General contact details of provider: https://edirc.repec.org/data/debocus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christopher F Baum (email available below). General contact details of provider: https://edirc.repec.org/data/debocus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.