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The effect of unobservables on labour supply decisions: the formal and informal sector during transition

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  • Namazie, Ceema Zahra

Abstract

The transition from a command economy in the FSU resulted in increased activities in the informal sector. However despite prevalent delays in wage payments many workers were still observed to be working full-time in the formal sector. Here a model of workers' labour supply decisions incorporates unobservable features of informal activities in both sectors; namely unofficial payments within the formal sector and stigma associated with the informal sector. These extensions result in non-trivial changes to workers' reservation wage conditions and reconcile the unexpected outcomes of workers' labour supply decisions. A limited empirical analysis of Kyrgyz data, for 1993 and 1996, provides support for the implications of this framework.

Suggested Citation

  • Namazie, Ceema Zahra, 2003. "The effect of unobservables on labour supply decisions: the formal and informal sector during transition," LSE Research Online Documents on Economics 6329, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:6329
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    File URL: http://eprints.lse.ac.uk/6329/
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    References listed on IDEAS

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    1. Paxson, Christina H & Sicherman, Nachum, 1996. "The Dynamics of Dual Job Holding and Job Mobility," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 357-393, July.
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    3. Rein,Martin & Friedman,Barry L. & Wörgötter,Andreas (ed.), 1997. "Enterprise and Social Benefits after Communism," Cambridge Books, Cambridge University Press, number 9780521584036.
    4. Namazie, Ceema Zahra, 2003. "Why labour hoarding may be rational: a model of firm behaviour during transition," LSE Research Online Documents on Economics 6361, London School of Economics and Political Science, LSE Library.
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    7. Mark C. Foley, 1997. "Multiple Job Holding in Russia During Economic Transition," Working Papers 781, Economic Growth Center, Yale University.
    8. Ceema Zahra Namazie, 2003. "Why Labour Hoarding may be Rational: A model of firm behaviour during transition," CASE Papers case69, Centre for Analysis of Social Exclusion, LSE.
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    Cited by:

    1. Iryna Kryvoruchko, 2015. "Russia's flat tax reform: redefining its effects on employment," Post-Communist Economies, Taylor & Francis Journals, vol. 27(2), pages 188-204, June.

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    More about this item

    Keywords

    transition; informal activities; labour supply decisions;
    All these keywords.

    JEL classification:

    • P23 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Factor and Product Markets; Industry Studies; Population
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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