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Comparative Advantage, Segmentation and Informal Earnings: A Marginal Treatment Effects Approach

Author

Listed:
  • Arias, Omar

    () (World Bank)

  • Khamis, Melanie

    () (Wesleyan University)

Abstract

This paper employs recently developed econometric models of marginal treatment effects to analyze the relevance of labor market comparative advantage and segmentation in the participation and earnings performance of workers in formal and informal jobs in Argentina. A novel household data set on informality and self-employment and information on labor inspections targeting informal work was collected for this purpose. We account for endogeneity and selectivity issues in our estimations. Our results offer evidence for both comparative advantage and segmentation. No significant differences between the earnings of formal salaried workers and the self-employed are found, once accounted for positive selection bias into formal work. This is consistent with labor market comparative advantage considerations. On the contrary, informal salaried employment carries significant earnings penalties, alongside negative selection bias and modest positive sorting. These results are more consistent with segmentation.

Suggested Citation

  • Arias, Omar & Khamis, Melanie, 2008. "Comparative Advantage, Segmentation and Informal Earnings: A Marginal Treatment Effects Approach," IZA Discussion Papers 3916, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp3916
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    Citations

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    Cited by:

    1. Corrado Giulietti & Guangjie Ning & Klaus F. Zimmermann, 2012. "Self-employment of rural-to-urban migrants in China," International Journal of Manpower, Emerald Group Publishing, vol. 33(1), pages 96-117, March.
    2. Aysit Tansel & Halil Ibrahim Keskin & Zeynel Abidin Ozdemir, 2015. "Is There An Informal Employment Wage Penalty In Egypt?," Working Papers 2015/14, Turkish Economic Association.
    3. Olivier Bargain & Prudence Kwenda, 2014. "The Informal Sector Wage Gap: New Evidence Using Quantile Estimations on Panel Data," Economic Development and Cultural Change, University of Chicago Press, vol. 63(1), pages 117-153.
    4. Aysit Tansel & Elif Oznur Acar, 2016. "The Formal/Informal Employment Earnings Gap: Evidence from Turkey," Research on Economic Inequality,in: Inequality after the 20th Century: Papers from the Sixth ECINEQ Meeting, volume 24, pages 121-154 Emerald Publishing Ltd.
    5. T. H. Gindling & Nadwa Mossaad & David Newhouse, 2016. "How Large are Earnings Penalties for Self-Employed and Informal Wage Workers?," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-39, December.
    6. Bertranou, Fabio. & Casanova, Luis. & Jiménez, Maribel. & Jiménez, Mónica., 2014. "Informality and employment quality in Argentina : country case study on labour market segmentation," ILO Working Papers 994854223402676, International Labour Organization.
    7. Hanan Nazier & Racha Ramadan, 2015. "Informality and Poverty: A Causality Dilemma with Application to Egypt," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 5(4), pages 1-4.
    8. Gindling,T. H. & Mossaad,Nadwa & Newhouse,David Locke, 2016. "Earnings premiums and penalties for self-employment and informal employees around the world," Policy Research Working Paper Series 7530, The World Bank.
    9. Cano-Urbina, Javier, 2015. "The role of the informal sector in the early careers of less-educated workers," Journal of Development Economics, Elsevier, vol. 112(C), pages 33-55.
    10. Bertranou, Fabio M. & Casanova, Luis. & Jiménez, Maribel. & Jiménez, Mónica., 2013. "Informalidad, calidad del empleo y segmentación laboral en Argentina," ILO Working Papers 994845913402676, International Labour Organization.
    11. Erol Taymaz, 2009. "Informality and Productivity: Productivity Differentials between Formal and Informal Firms in Turkey," ERC Working Papers 0901, ERC - Economic Research Center, Middle East Technical University, revised Mar 2009.
    12. Morales, Rolando, 2012. "Entre la formalidad y la informalidad. ¿Opciones e ingresos diferentes?," Revista Latinoamericana de Desarrollo Economico, Instituto de Investigaciones Socio-Económicas (IISEC), Universidad Católica Boliviana, issue 17, pages 7-52, Mayo.
    13. Olivier Bargain & Prudence Kwenda, 2009. "The Informal Sector Wage Gap: New Evidence Using Quantile Regressions on Panel Data," CEDI Discussion Paper Series 09-06, Centre for Economic Development and Institutions(CEDI), Brunel University.
    14. Mónica Jiménez, 2013. "La informalidad laboral en el sector formal. Un análisis preliminar," Working Papers 10, Instituto de Estudios Laborales y del Desarrollo Económico (IELDE) - Universidad Nacional de Salta - Facultad de Ciencias Económicas, Jurídicas y Sociales.
    15. Akay, Alpaslan & Khamis, Melanie, 2011. "The Persistence of Informality: Evidence from Panel Data," IZA Discussion Papers 6163, Institute for the Study of Labor (IZA).
    16. repec:ilo:ilowps:484591 is not listed on IDEAS
    17. Mohamad Alloush & Carole Chartouni & Roberta Gatti & Joana Silva, 2013. "Informality and exclusion: evidence from matched employer-employee data for Lebanon and Syria," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-18, December.
    18. Olivier Bargain & Prudence Kwenda, 2010. "Is informality bad? Evidence from Brazil, Mexico and South Africa," Working Papers 201003, School of Economics, University College Dublin.
    19. Dirk Oberschachtsiek, 2012. "The experience of the founder and self-employment duration: a comparative advantage approach," Small Business Economics, Springer, vol. 39(1), pages 1-17, July.
    20. Samantha Haussmann & André Braz Golgher, 2016. "Shrinking gender wage gaps in the Brazilian labor market: an application of the APC approach [Shrinking gender wage gaps in the Brazilian labor market: an application of the APC approach]," Nova Economia, Economics Department, Universidade Federal de Minas Gerais (Brazil), vol. 26(2), pages 429-464, May-Augus.
    21. repec:ilo:ilowps:485422 is not listed on IDEAS

    More about this item

    Keywords

    marginal treatment effects; occupational choice; segmentation; earnings; comparative advantage; informality; labor markets;

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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