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The Effect of Unobservables on Labour Supply Decisions: The formal and informal sector during transition

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  • Ceema Zahra Namazie

Abstract

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.

Suggested Citation

  • Ceema Zahra Namazie, 2003. "The Effect of Unobservables on Labour Supply Decisions: The formal and informal sector during transition," CASE Papers case72, Centre for Analysis of Social Exclusion, LSE.
  • Handle: RePEc:cep:sticas:case72
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    File URL: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper72.pdf
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    References listed on IDEAS

    as
    1. Paxson, Christina H & Sicherman, Nachum, 1996. "The Dynamics of Dual Job Holding and Job Mobility," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 357-393, July.
    2. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    transition; informal activities; labour supply decisions;

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • P23 - Economic Systems - - Socialist Systems and Transition Economies - - - Factor and Product Markets; Industry Studies; Population

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