Does the Nigerian formal sector pay more than its informal sector?
Nigerian data from the early 2000s indicates that formal sector earnings are about 70% higher than informal sector earnings but, for men, part of this is due to an educational composition effect. The returns to education are lower in the informal sector than in the formal sector, but mainly at the post-secondary stage because formal sector earnings are more convex in education. We find no evidence that other skill acquisition methods contribute to earnings, but apprenticeships are positively associated with selection into the informal sector while vocational training or other courses tend to be coupled with work in the formal sector. These results are subject to a number of interpretations, so it remains an open question whether a person with given observed or unobserved characteristics would earn more in the formal sector.
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