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Informal Employment and the Role of Regional Governance

The aim of this paper is to provide an explanation to why the degree of informal employment may vary substantially between different regions within a country. In Brazil, 45% of workers in the urban labor force are employed informally. The degree of informal employment, however, varies substantially across regions, with some cities having 20% and others having 80% or more of their labor force in the informal sector.The hypothesis assessed here is that the quality of local governance—or government effectiveness—affects the decisions of workers and businesses as to whether to participate in the formal or the informal sector. The empirical analysis, based on data from 5500 Brazilian municipalities, shows that informal employment is lower in regions with better governance, higher average education, and with a relatively large manufacturing sector. Endogeneity concerns are addressed as part of a series of robustness checks of the results.

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Paper provided by Lund University, Department of Economics in its series Working Papers with number 2009:10.

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Length: 17 pages
Date of creation: 26 Apr 2009
Date of revision: 27 Sep 2010
Publication status: Published as Jonasson, Erik, 'Informal Employment and the Role of Regional Governance' in Review of Development Economics, 2011, pages 429-441.
Handle: RePEc:hhs:lunewp:2009_010
Contact details of provider: Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en

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