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Informal and Formal Sector Participation and Earnings in a LDC: The Importance of Time and Migration

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Abstract

Theoretical and empirical research points to potentially different patterns of labor recruitment and importance of social networks in the formal and informal sector. The paper touches upon this topic and investigates the conjecture that employment chances and expected earnings depend differently on individuals’ allocation of time and mobility patterns in the informal and formal sector. This is investigated in a LDC context using a household survey from Guatemala (Encovi 2000). The results suggest that the probability to obtain employment in agriculture (informal sector) increases with the amount of time spent at the current residence. The results are reversed for (informal) uncovered wage workers. For the (informal) self-employed and the formal sector (covered wage workers) the results does not display any evident patterns. Merging all segments of the informal sector, the results show that expected earnings in the informal sector are slightly reduced by time not spent at the current residence.

Suggested Citation

  • Karpestam, Peter, 2011. "Informal and Formal Sector Participation and Earnings in a LDC: The Importance of Time and Migration," Working Papers 2011:3, Lund University, Department of Economics.
  • Handle: RePEc:hhs:lunewp:2011_003
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    Keywords

    The Informal Sector; Labor; Migration; Time; Central America; Guatemala.;

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • J70 - Labor and Demographic Economics - - Labor Discrimination - - - General
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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