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“What drives the spatial wage premium in formal and informal labour markets? The case of Ecuador”

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Listed:
  • Alessia Matano

    (AQR-IREA, University of Barcelona, Barcelona, Spain)

  • Moisés Obaco

    (GIER (Reserach Group in Regional Economics), University of Cuenca, Ecuador and AQR-IREA, University of Barcelona, Barcelona, Spain.)

  • Vicente Royuela

    (AQR-IREA, University of Barcelona, Barcelona, Spain)

Abstract

This article investigates the incidence of agglomeration externalities in Ecuador, a small-sized, middle-income developing country. In particular, we analyze the role of the informal sector within these relations, since informal employment accounts for a significant part of total employment in the developing countries. Using individual level data and instrumental variable techniques, we investigate the impact of spatial externalities, in terms of population density, local specialization and urban size, on the wages of workers in Ecuadorian cities. The results show that spatial externalities matter also for a small developing country. Moreover, analysis of the interaction between spatial externalities and informality shows that, on average, workers employed in the informal sector do not enjoy significant benefits from agglomeration externalities. Finally, by investigating the possible channels behind spatial agglomeration gains we show that the advantages from agglomeration for formal sector workers may well be accounted for by better job-quality matches and, to a lesser extent, by learning externalities. For informal sector workers, our findings also suggest possible gains from job changes, which offset a penalty for remaining employed in the same occupation.

Suggested Citation

  • Alessia Matano & Moisés Obaco & Vicente Royuela, 2018. "“What drives the spatial wage premium in formal and informal labour markets? The case of Ecuador”," IREA Working Papers 201813, University of Barcelona, Research Institute of Applied Economics, revised Jun 2018.
  • Handle: RePEc:ira:wpaper:201813
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    References listed on IDEAS

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    2. Almeida, Eloiza R.F. & Araújo, Veneziano & Gonçalves, Solange L., 2022. "Urban wage premium for women: evidence across the wage distribution," World Development, Elsevier, vol. 159(C).
    3. Gómez-Lobo, Andrés & Sánchez González, Santiago & González Mejia, Vileydy & Calatayud, Agustina, 2022. "Agglomeration and Congestion in Latin America," IDB Publications (Working Papers) 11952, Inter-American Development Bank.
    4. Daniel Sánchez-Piñol Yulee, 2023. "Show Me the Money! The Effects of a Conditional Cash-Transfer Program on the Labor Market in Ecuador," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 38(Winter 20), pages 1-28.
    5. Mero-Figueroa, Marina & Galdeano-Gómez, Emilio & Piedra-Muñoz, Laura & Obaco, Moisés, 2020. "Measuring well-being: A Buen Vivir (living well) indicator for Ecuador," MPRA Paper 119912, University Library of Munich, Germany.
    6. Juan Ponce & Jos'e-Ignacio Ant'on & Mercedes Onofa & Roberto Castillo, 2023. "The long-term impact of (un)conditional cash transfers on labour market outcomes in Ecuador," Papers 2309.17216, arXiv.org.
    7. Diana Silva & Carlos Azzoni, 2022. "Worker and firm heterogeneity, agglomeration, and wages in Brazil," Papers in Regional Science, Wiley Blackwell, vol. 101(1), pages 107-133, February.
    8. Marina Mero-Figueroa & Emilio Galdeano-Gómez & Laura Piedra-Muñoz & Moisés Obaco, 2020. "Measuring Well-Being: A Buen Vivir (Living Well) Indicator for Ecuador," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 152(1), pages 265-287, November.

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    More about this item

    Keywords

    Agglomeration Externalities; Developing Economies; Informal Employment; Workers’ Wages; Functional Urban Areas; Ecuador. JEL classification: J31; J46; R23; R12.;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • R - Urban, Rural, Regional, Real Estate, and Transportation Economics

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