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

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  • Tomás Opazo

Abstract

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.

Suggested Citation

  • Tomás Opazo, 2024. "Climbing the (in)formality job ladder: Determinants and Dynamics of Labour Informality in Peru," Working Papers Central Bank of Chile 1028, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:1028
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    File URL: https://www.bcentral.cl/documents/33528/133326/Documento+de+Trabajo+1028.pdf/01a600fb-da76-403a-16d1-e1c8887310e6?t=1732622385427
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    References listed on IDEAS

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    1. Rafael La Porta & Andrei Shleifer, 2014. "Informality and Development," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 109-126, Summer.
    2. Bernal, Noelia & Carpio, Miguel A. & Klein, Tobias J., 2017. "The effects of access to health insurance: Evidence from a regression discontinuity design in Peru," Journal of Public Economics, Elsevier, vol. 154(C), pages 122-136.
    3. Alberto Chong & Jose Galdo & Jaime Saavedra, 2008. "Informality and productivity in the labor market in Peru," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 11(4), pages 229-245.
    4. Matias Busso & Maria Victoria Fazio & Santiago Levy Algazi, 2012. "(In)Formal and (Un)Productive: The Productivity Costs of Excessive Informality in Mexico," Research Department Publications 4789, Inter-American Development Bank, Research Department.
    5. Matías Busso & Maria Victoria Fazio & Santiago Levy Algazi, 2012. "(In)Formal and (Un)Productive: The Productivity Costs of Excessive Informality in Mexico," IDB Publications (Working Papers) 75698, Inter-American Development Bank.
    6. Barco, Daniel & Vargas, Paola, 2010. "El Perfil del Trabajador Informal y el Retorno de la Educación," Working Papers 2010-004, Banco Central de Reserva del Perú.
    7. Alberto Chong & Jose Galdo & Jaime Saavedra, 2008. "Informality and productivity in the labor market in Peru," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 11(4), pages 229-245.
    8. Camila Cisneros-Acevedo, 2022. "Unfolding Trade Effect in Two Margins of Informality. The Peruvian Case," The World Bank Economic Review, World Bank, vol. 36(1), pages 141-170.
    9. Hernando Gutierrez, Luis & Rodriguez-Lesmes, Paul, 2023. "Productivity gaps at formal and informal microfirms," World Development, Elsevier, vol. 165(C).
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    12. Norman Loayza, 2007. "The causes and consequences of informality in Peru," Working Papers 2007-018, Banco Central de Reserva del Perú.
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