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Informal Employment in Bolivia: A Lost Proposition?

  • Maria Tannuri-Pianto

    ()

    (Departamento de Economia (Department of Economics) Faculdade de Economia, Administração, Contabilidade e Ciência da Informação e Documentação (FACE) (Faculty of Economics, Administration, Accounting and Information Science) Universidade de Brasília)

  • Donald M. Pianto

    (Universidade Federal de Pernambuco)

  • Omar Arias

    (World Bank)

We study participation and relative earnings in the formal, informal, and self-employed sectors in Bolivia. We estimate quantile earnings equations corrected for self-selectivity to address potential biases in the estimates of relative earnings gaps due to the endogeneity of sector participation. Selectivity is significant in all three sectors for all three years studied. The benefits of being more formal like at low quantiles of the informal sector vanish from 1997 to 2002 as the availability of formal jobs decreases. The human capital model is very well fit for 1993 and 1997. In 2002 it is best fit for the formal sector where education and experience explain much of a worker's earnings, and worst fit for the self-employed sector where education does not play a role and experience is only important at high quantiles. We exploit the semi-parametric nature of quantile regression to link the conditional returns to worker characteristics, obtained from the quantile regressions, with the poverty status of households to determine the extent to which unobserved earnings determinants interact with observed characteristics to penalize non-formal workers in poor households. We find that females in non-formal employment suffer the largest penalties. In unreported results (available from the authors upon request) we perform a counterfactual analysis of conditional earnings by sector, decomposing the earnings gaps into differences in endowments of skills and differences in returns to skills. The results suggest segmentation between the formal and informal sector at the lowest conditional quantiles, while higher productivity workers seem to have a choice of which sector to work in.

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Paper provided by Departamento de Economia da Universidade de Brasilia in its series Working papers - Textos para Discussao do Departamento de Economia da Universidade de Brasilia with number 317.

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Length: 38 pages
Date of creation: Jul 2004
Date of revision:
Handle: RePEc:brs:wpaper:317
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  1. Newey, Whitney K & Powell, James L & Walker, James R, 1990. "Semiparametric Estimation of Selection Models: Some Empirical Results," American Economic Review, American Economic Association, vol. 80(2), pages 324-28, May.
  2. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
  3. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July.
  4. Moshe Buchinsky, 1998. "The dynamics of changes in the female wage distribution in the USA: a quantile regression approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(1), pages 1-30.
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