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Informal Employment Relationships and Labor Market Segmentation in Transition Economies: Evidence from Ukraine

  • Hartmut Lehmann
  • Norberto Pignatti

Research on informal employment in transition countries has been very limited because of alack of appropriate data. A new rich panel data set from Ukraine, the Ukrainian LongitudinalMonitoring Survey (ULMS), enables us to provide some empirical evidence on informalemployment in Ukraine and the validity of the three schools of thought in the literature onthe role of informality in the development process. Apart from providing additional evidencewith richer data than usually available in developing countries, the paper investigates to whatextent the informal sector plays a role in labor market adjustment in a transition economy.The evidence points to some labor market segmentation since the majority of informalsalaried employees are involuntarily employed and workers seem to queue for formalsalaried jobs. We also show that the dependent informal sector is segmented into a voluntary"upper tier" and an involuntary lower part where the majority of informal jobs are located.Our contention that informal self-employment is voluntary is confirmed by the substantialearnings premia associated with movements into this state.

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Paper provided by DIW Berlin, German Institute for Economic Research in its series ESCIRRU Working Papers with number 3.

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Length: 62 p.
Date of creation: 2008
Date of revision:
Handle: RePEc:diw:diwesc:diwesc3
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  1. Lee, Lung-Fei, 1983. "Generalized Econometric Models with Selectivity," Econometrica, Econometric Society, vol. 51(2), pages 507-12, March.
  2. Bosch, Mariano & Maloney, William, 2005. "Labor market dynamics in developing countries: comparative analysis using continuous time Markov processes," Policy Research Working Paper Series 3583, The World Bank.
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  7. Schneider, Friedrich, 2004. "The Size of the Shadow Economies of 145 Countries all over the World: First Results over the Period 1999 to 2003," IZA Discussion Papers 1431, Institute for the Study of Labor (IZA).
  8. Eliane El Badaoui & Eric Strobl & Frank Walsh, 2008. "Is There an Informal Employment Wage Penalty? Evidence from South Africa," Economic Development and Cultural Change, University of Chicago Press, vol. 56, pages 683-710.
  9. Funkhouser, Edward, 1997. "Mobility and Labor Market Segmentation: The Urban Labor Market in El Salvador," Economic Development and Cultural Change, University of Chicago Press, vol. 46(1), pages 123-53, October.
  10. Fields, Gary S., 2007. "Labor market policy in developing countries : a selective review of the literature and needs for the future," Policy Research Working Paper Series 4362, The World Bank.
  11. Tito Boeri & Katherine Terrell, 2002. "Institutional Determinants of Labor Reallocation in Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 51-76, Winter.
  12. 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.
  13. Chandra, Vandana & Khan, M Ali, 1993. "Foreign Investment in the Presence of an Informal Sector," Economica, London School of Economics and Political Science, vol. 60(237), pages 79-103, February.
  14. Heckman, James J & Honore, Bo E, 1990. "The Empirical Content of the Roy Model," Econometrica, Econometric Society, vol. 58(5), pages 1121-49, September.
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