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Informality, Public Employment and Employment Protection in Developing Countries

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  • Francois Langot
  • Shaimaa Yassin

Abstract

This paper proposes an equilibrium matching labor market model for developing countries where the interaction between public, formal and informal sectors is considered. Theoretical analysis shows that labor markets' liberalization reforms can be evicted by shifts in public employment. Since the public sector accounts for a substantial share of employment in developing countries, this approach is crucial to understand their labor market outcomes. Wage offers to public sector employees increase the outside option value of workers during their bargaining processes in the formal and informal sectors. It becomes more profitable for workers to search on-the-job to access more attractive and stable jobs. The public sector therefore acts as an additional tax imposed on private firms. Using workers flows data from Egypt, we show that labor markets' liberalization plays against informal employment by increasing formal jobs' profitability, but is evicted by the increase of public sector wages observed at the same time.

Suggested Citation

  • Francois Langot & Shaimaa Yassin, 2016. "Informality, Public Employment and Employment Protection in Developing Countries," IRENE Working Papers 16-09, IRENE Institute of Economic Research.
  • Handle: RePEc:irn:wpaper:16-09
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    References listed on IDEAS

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    Cited by:

    1. Ragui Assaad & Rana Hendy & Moundir Lassassi & Shaimaa Yassin, 2020. "Explaining the MENA paradox: Rising educational attainment yet stagnant female labor force participation," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 43(28), pages 817-850.
    2. Girsberger, Esther Mirjam & Meango, Romuald, 2022. "The Puzzle of Educated Unemployment in West Africa," IZA Discussion Papers 15721, Institute of Labor Economics (IZA).
    3. Gindling, T.H. & Hasnain, Zahid & Newhouse, David & Shi, Rong, 2020. "Are public sector workers in developing countries overpaid? Evidence from a new global dataset," World Development, Elsevier, vol. 126(C).
    4. Krafft Caroline & Assaad Ragui & Rahman Khandker Wahedur, 2021. "Introducing the Egypt Labor Market Panel Survey 2018," IZA Journal of Development and Migration, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 12(1), pages 1-40, January.
    5. Ragui Assaad & Caroline Krafft & Shaimaa Yassin, 2020. "Job creation or labor absorption? An analysis of private sector job growth in Egypt," Middle East Development Journal, Taylor & Francis Journals, vol. 12(2), pages 177-207, July.
    6. Diogo Baerlocher, 2022. "Public employment and economic growth," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(1), pages 211-236, February.
    7. Giovanna Vallanti & Giuseppina Gianfreda, 2021. "Informality, regulation and productivity: do small firms escape EPL through shadow employment?," Small Business Economics, Springer, vol. 57(3), pages 1383-1412, October.
    8. Robertson, Raymond & Vergara Bahena, Mexico Alberto & Lopez-Acevedo, Gladys, 2022. "Is International Trade Always Beneficial to Labor Markets? A Case Study from Egypt," IZA Discussion Papers 15626, Institute of Labor Economics (IZA).
    9. Tansel, Aysit & Keskin, Halil Ibrahim & Ozdemir, Zeynel Abidin, 2020. "Public-private sector wage gap by gender in Egypt: Evidence from quantile regression on panel data, 1998–2018," World Development, Elsevier, vol. 135(C).
    10. Nikita Céspedes Reynaga & N.R. Ramírez-Rondán, 2020. "Job finding and separation rates in an economy with high labor informality," Working Papers 166, Peruvian Economic Association.
    11. Jonathan Lain, 2019. "Discrimination in a search and matching model with self-employment," IZA Journal of Migration and Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 9(1), pages 1-35, December.

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    More about this item

    Keywords

    Job search; Informality; Public Sector; Egypt; Unemployment; Wages; Policy Interventions.;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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