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Informal versus Formal: A Panel Data Analysis of Earnings Gaps in Madagascar

  • Christophe Nordman

    ()

    (DIAL, IRD, Paris)

  • Faly Rakotomanana

    ()

    (INSTAT - DSM, Antananarivo)

  • François Roubaud

    ()

    (DIAL, IRD, Paris)

(english) In spite of its predominant economic weight in developing countries, little is known about informal sector income dynamics vis-à-vis the formal sector. The few works using household surveys to tackle this issue, mainly consider some emerging countries. As a matter of consequence, there is still no way to generalize the (diverging) results to very poor part of the developing world. Taking advantage of the rich 1-2-3 Surveys dataset in Madagascar, in particular its four waves panel data (2000, 2001, 2003 and 2004), we assess the magnitude of various formal/informal sector earnings gaps while addressing heterogeneity issues at three different levels: the worker, the job (wage employment vs. selfemployment) and the earnings distribution. The questions asked are the following: Is there an informal sector job earnings penalty? Do some informal sector jobs provide pecuniary premiums? Which ones? Do possible gaps vary along the earnings distribution? Standard earnings equations are estimated at the mean and at various conditional quantiles of the earnings distribution. In particular, we estimate fixed effects quantile regressions to control for unobserved individual characteristics, focusing particularly on heterogeneity within both the formal and informal sector categories. Our results suggest that the informal sector earnings gap highly depends on the workers’ job status and on their relative position in the earnings distribution. Penalties may in some cases turn into premiums. By comparing our results with studies in other developing countries, we draw conclusions highlighting the Madagascar’s labour market specificity. _________________________________ (français) En dépit d'un poids économique massif dans les pays en développement, on sait peu de choses sur la structure des revenus du secteur informel, notamment en comparaison du secteur formel. Les quelques papiers qui ont abordé cette question à travers des enquêtes ménages traitent surtout de quelques pays émergents. En conséquence, il n'est pas possible de généraliser leurs conclusions, d'ailleurs divergentes, aux pays les plus pauvres notamment africains. En mobilisant une base de données unique tirée des enquêtes 1-2-3 à Madagascar, conduites par les soins des auteurs, en particulier des quatre vagues de panel (2000, 2001, 2003 et 2004), nous examinons l'ampleur du différentiel de rémunération formel/informel en tenant compte de l'hétérogénéité à trois niveaux différents : celle des travailleurs, de leurs emplois (salariés vs non salariés) et de la distribution des revenus. Les questions abordées sont les suivantes : les travailleurs du secteur informel sont-ils toujours financièrement pénalisés ? Si non, quels sont les emplois de ce secteur qui bénéficient d'une prime et à combien se monte-t-elle ? Les écarts varient-ils au long de la distribution ? Nous estimons des équations de gains à la moyenne et à différents points de la distribution des revenus (régressions quantile). Dans les deux cas, des modèles à effets fixes sont estimés de contrôler les caractéristiques inobservables des individus, en se centrant sur l'hétérogénéité interne des deux secteurs (formel et informel). Nos résultats montrent que le différentiel de rémunération dépend fortement du statut dans l'emploi et de la position relative dans la distribution des revenus. Dans certains cas, le secteur informel apparaît plus rémunérateur. La comparaison avec les études réalisées dans d'autres PED permet de mettre en lumière les spécificités du marché du travail à Madagascar.

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File URL: http://www.dial.ird.fr/media/ird-sites-d-unites-de-recherche/dial/documents/publications/doc_travail/2012/2012-12
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Paper provided by DIAL (Développement, Institutions et Mondialisation) in its series Working Papers with number DT/2012/12.

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Length: 46 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:dia:wpaper:dt201212
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  1. Soderbom, Mans & Teal, Francis & Wambugu, Anthony, 2005. "Unobserved heterogeneity and the relation between earnings and firm size: evidence from two developing countries," Economics Letters, Elsevier, vol. 87(2), pages 153-159, May.
  2. Julia Vaillant & Michael Grimm & Jann Lay & Fran�ois Roubaud, 2014. "Informal sector dynamics in times of fragile growth: The case of Madagascar," The European Journal of Development Research, Palgrave Macmillan, vol. 26(4), pages 437-455, September.
  3. Peter Glick & François Roubaud, 2006. "Export Processing Zone Expansion in Madagascar: What are the Labour Market and Gender Impacts?," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 15(4), pages 722-756, December.
  4. Wolff, François-Charles & Nordman, Christophe Jalil, 2010. "Gender Differences in Pay in African Manufacturing Firms," Economics Papers from University Paris Dauphine 123456789/10806, Paris Dauphine University.
  5. Paolo Falco & Andrew Kerr & Neil Rankin & Justin Sandefur & Francis Teal, 2010. "The Returns to formality and Informality in Urban Africa," CSAE Working Paper Series 2010-03, Centre for the Study of African Economies, University of Oxford.
  6. Maloney, William F, 1999. "Does Informality Imply Segmentation in Urban Labor Markets? Evidence from Sectoral Transitions in Mexico," World Bank Economic Review, World Bank Group, vol. 13(2), pages 275-302, May.
  7. Koenker, Roger, 2004. "Quantile regression for longitudinal data," Journal of Multivariate Analysis, Elsevier, vol. 91(1), pages 74-89, October.
  8. Strobl, Eric & Thornton, Robert, 2002. "Do Large Employers Pay More in Developing Countries? The Case of Five African Countries," IZA Discussion Papers 660, Institute for the Study of Labor (IZA).
  9. Fernández, Rosa M. & Nordman, Christophe J., 2009. "Are there pecuniary compensations for working conditions?," Labour Economics, Elsevier, vol. 16(2), pages 194-207, April.
  10. Ivan A. Canay, 2011. "A simple approach to quantile regression for panel data," Econometrics Journal, Royal Economic Society, vol. 14(3), pages 368-386, October.
  11. Huu Chi Nguyen & Christophe J. Nordman & François Roubaud, 2013. "Who Suffers the Penalty?: A Panel Data Analysis of Earnings Gaps in Vietnam," Journal of Development Studies, Taylor & Francis Journals, vol. 49(12), pages 1694-1710, December.
  12. Gong, Xiaodong & van Soest, Arthur & Villagomez, Elizabeth, 2000. "Mobility in the Urban Labor Market: A Panel Data Analysis for Mexico," IZA Discussion Papers 213, Institute for the Study of Labor (IZA).
  13. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-42, March.
  14. Bargain, Olivier & Kwenda, Prudence, 2010. "Is Informality Bad? Evidence from Brazil, Mexico and South Africa," IZA Discussion Papers 4711, Institute for the Study of Labor (IZA).
  15. Cling, Jean-Pierre & Razafindrakoto, Mireille & Roubaud, Francois, 2005. "Export processing zones in Madagascar: a success story under threat?," World Development, Elsevier, vol. 33(5), pages 785-803, May.
  16. Nordman, Christophe J. & Robilliard, Anne-Sophie & Roubaud, François, 2011. "Gender and ethnic earnings gaps in seven West African cities," Labour Economics, Elsevier, vol. 18(S1), pages S132-S145.
  17. Roubaud, François & Razafindrakoto, Mireille & Cling, Jean-Pierre, 2009. "Export Processing Zones in Madagascar: the impact of the dismantling of clothing quotas on employment and labour standards," Economics Papers from University Paris Dauphine 123456789/4336, Paris Dauphine University.
  18. Razafindrakoto, Mireille & Roubaud, François & Torelli, Constance, 2009. "Measuring the informal sector and informal employment: the experience drawn from 1-2-3 surveys in African countries," Economics Papers from University Paris Dauphine 123456789/10627, Paris Dauphine University.
  19. Glick, Peter & Roubaud, François, 2006. "Export Processing Zone Expansion in Madagascar: What are the Labor Market and Gender Impacts?," Economics Papers from University Paris Dauphine 123456789/4457, Paris Dauphine University.
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