On Defining and Measuring the Informal Sector
A range of alternative empirical definitions of informal activity have been employed in the literature. Choice of definition is often dictated by data availability. Different definitions may imply very different conceptual understandings of informality. This paper investigates the degree of congruence between three definitions of informality based on employment contract registration, on social security protection and the characteristics of the employer and employment using Brazilian household survey data for the period 1992 to 2001. 64% of the economically active are informal according to at least one definition, but only 40% are informal according to all three. Steady compositional changes have been taking place amongst informal workers, conditional on definition. Econometric analysis reveals that the conditional impact of particular factors (demographic, educational attainment, family circumstances) on the likelihood of informality varies considerably from one definition to another. Results suggest growing heterogeneity within the informal sector. Informal activity may be as much associated with entrepreneurial dynamism as with any desire to avoid costly contract registration and social protection. However there is no a priori reason for entrepreneurial activity to be unprotected. Results in the paper confirm this. Consequently definitions of informality based on occupation and employer size seem the most arbitrary in practice even if conceptually well-founded.
|Date of creation:||Nov 2006|
|Date of revision:|
|Publication status:||published in: World Development, 2009, 37(5), 992-1003|
|Contact details of provider:|| Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany|
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
|Order Information:|| Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Loayza, Norman V. & Oviedo, Ana Maria & Serven, Luis, 2005. "The impact of regulation on growth and informality - cross-country evidence," Policy Research Working Paper Series 3623, The World Bank.
- Pradhan, M.P. & van Soest, A.H.O., 1993.
"Formal and informal sector employment in urban areas of Bolivia,"
1993-11, Tilburg University, Center for Economic Research.
- Pradhan, Menno & van Soest, Arthur, 1995. "Formal and informal sector employment in urban areas of Bolivia," Labour Economics, Elsevier, vol. 2(3), pages 275-297, September.
- Pradhan, M.P. & van Soest, A.H.O., 1995. "Formal and informal sector unemployment in urban areas of Bolivia," Other publications TiSEM 4b6b27c8-e099-40fd-bee4-3, Tilburg University, School of Economics and Management.
- Pradhan, M. & Van Soest, A., 1993. "Formal and Informal Sector Employment in Urban Areas of Bolivia," Papers 9311, Tilburg - Center for Economic Research.
- Jaime Saavedra & Alberto Chong, 1999. "Structural reform, institutions and earnings: Evidence from the formal and informal sectors in urban Peru," Journal of Development Studies, Taylor & Francis Journals, vol. 35(4), pages 95-116.
- Galli, Rossana & Kucera, David, 2004. "Labor Standards and Informal Employment in Latin America," World Development, Elsevier, vol. 32(5), pages 809-828, May.
- Portes, Alejandro & Blitzer, Silvia & Curtis, John, 1986. "The urban informal sector in Uruguay: Its internal structure, characteristics, and effects," World Development, Elsevier, vol. 14(6), pages 727-741, June.
- Magnac, Th, 1991. "Segmented or Competitive Labor Markets," Econometrica, Econometric Society, vol. 59(1), pages 165-87, January.
- Maloney, William, 2003.
Policy Research Working Paper Series
2965, The World Bank.
- Fields, Gary S., 1975. "Rural-urban migration, urban unemployment and underemployment, and job-search activity in LDCs," Journal of Development Economics, Elsevier, vol. 2(2), pages 165-187, June.
- repec:reg:rpubli:271 is not listed on IDEAS
- Maloney, William F, 1999. "Does Informality Imply Segmentation in Urban Labor Markets? Evidence from Sectoral Transitions in Mexico," World Bank Economic Review, World Bank Group, vol. 13(2), pages 275-302, May.
- Gong, Xiaodong & van Soest, Arthur & Villagomez, Elizabeth, 2000.
"Mobility in the Urban Labor Market: A Panel Data Analysis for Mexico,"
IZA Discussion Papers
213, Institute for the Study of Labor (IZA).
- Gong, Xiaodong & Van Soest, Arthur & Villagomez, Elizabeth, 2004. "Mobility in the Urban Labor Market: A Panel Data Analysis for Mexico," Economic Development and Cultural Change, University of Chicago Press, vol. 53(1), pages 1-36, October.
- Gong, X. & van Soest, A.H.O. & Villagomez, E., 2000. "Mobility in the Urban Labor Market : A Panel Data Analysis for Mexico," Discussion Paper 2000-46, Tilburg University, Center for Economic Research.
- Livingstone, Ian, 1991. "A reassessment of Kenya's rural and urban informal sector," World Development, Elsevier, vol. 19(6), pages 651-670, June.
- Marcouiller, Douglas & Ruiz de Castilla, Veronica & Woodruff, Christopher, 1997.
"Formal Measures of the Informal-Sector Wage Gap in Mexico, El Salvador, and Peru,"
Economic Development and Cultural Change,
University of Chicago Press, vol. 45(2), pages 367-92, January.
- Douglas Marcouiller, S.J. & Veronica Ruiz de Castilla & Christopher Woodruff, 1995. "Formal Measures of the Informal Sector Wage Gap in Mexico, El Salvador, and Peru," Boston College Working Papers in Economics 294., Boston College Department of Economics.
- Ricardo Paes de Barros & Carlos Henrique Corseuil, 2001.
"The Impact of Regulations on Brazilian Labor Market Performance,"
Research Department Publications
3124, Inter-American Development Bank, Research Department.
- Ricardo Paes de Barros & Carlos Henrique Corseuil, 2004. "The Impact of Regulations on Brazilian Labor Market Performance," NBER Chapters, in: Law and Employment: Lessons from Latin America and the Caribbean, pages 273-350 National Bureau of Economic Research, Inc.
- Heckman, James J & Sedlacek, Guilherme, 1985. "Heterogeneity, Aggregation, and Market Wage Functions: An Empirical Model of Self-selection in the Labor Market," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1077-1125, December.
- Cunningham, Wendy V. & Maloney, William F., 1998.
"Heterogeneity among Mexico's micro-enterprises - an application of factor and cluster analysis,"
Policy Research Working Paper Series
1999, The World Bank.
- Cunningham, Wendy V & Maloney, William F, 2001. "Heterogeneity among Mexico's Microenterprises: An Application of Factor and Cluster Analysis," Economic Development and Cultural Change, University of Chicago Press, vol. 50(1), pages 131-56, October.
- Mazumdar, Dipak, 1976. "The urban informal sector," World Development, Elsevier, vol. 4(8), pages 655-679, August.
- Michael J. Pisani & JosÃ© A. Pagán, 2004. "Self-employment in the era of the new economic model in Latin America: a case study from Nicaragua," Entrepreneurship & Regional Development, Taylor & Francis Journals, vol. 16(4), pages 335-350, July.
- Menno Pradhan & Arthur Van Soest, 1997.
"Household Labor Supply In Urban Areas Of Bolivia,"
The Review of Economics and Statistics,
MIT Press, vol. 79(2), pages 300-310, May.
- Cohen, Barney & House, William J, 1996. "Labor Market Choices, Earnings, and Informal Networks in Khartoum, Sudan," Economic Development and Cultural Change, University of Chicago Press, vol. 44(3), pages 589-618, April.
- Funkhouser, Edward, 1996. "The urban informal sector in Central America: Household survey evidence," World Development, Elsevier, vol. 24(11), pages 1737-1751, November.
- Francisco Carneiro, 1997. "The Changing Informal Labour Market in Brazil: Cyclicality versus Excessive Intervention," LABOUR, CEIS, vol. 11(1), pages 3-22, 04.
When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp2473. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)
If references are entirely missing, you can add them using this form.