Climbing the (in)formality job ladder: Determinants and Dynamics of Labour Informality in Peru

The informal labour market represents a significant component of employment in Peru, more than twothirds of the workers are situated in the informal economy. This paper explores the prevalence, determinants, and dynamics of labour informality in Peru, considering the extensive margin, where unregistered firms hire unregistered workers, and the intensive margin, in which, even when firms are registered with tax authorities, hire employees off the books. Exploiting a rich household survey (ENAHO) between 2007 and 2019, the paper identifies key determinants of informality, such as gender, age, experience and education. Furthermore, the paper analyses transitions into and out of labour informality and the factors influencing these transitions over time. The findings suggest that labour and firm informality are influenced by both structural economic conditions and individual characteristics. Finally, the paper explores the linkages between workers’ transitions and subsequent changes in their labour income. This study contributes to a deeper understanding of informal employment in Peru, with lessons for Latin America, offering insights for policymakers aiming to enhance labour market formalisation and social protection.