The Effect of Unobservables on Labour Supply Decisions: The formal and informal sector during transition
The transition from a command economy in the FSU resulted in increased activities in the informal sector. However despite prevalent delays in wage payments many workers were still observed to be working full-time in the formal sector. Here a model of workers' labour supply decisions incorporates unobservable features of informal activities in both sectors; namely unofficial payments within the formal sector and stigma associated with the informal sector. These extensions result in non-trivial changes to workers' reservation wage conditions and reconcile the unexpected outcomes of workers' labour supply decisions. A limited empirical analysis of Kyrgyz data, for 1993 and 1996, provides support for the implications of this framework.
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- Smith Conway, Karen & Kimmel, Jean, 1998. "Male labor supply estimates and the decision to moonlight," Labour Economics, Elsevier, vol. 5(2), pages 135-166, June.
- Christina H. Paxson & Nachum Sicherman, 1994.
"The Dynamics of Dual-Job Holding and Job Mobility,"
NBER Working Papers
4968, National Bureau of Economic Research, Inc.
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