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Bound To Lose, Bound To Win? The Financial Crisis and the Informal-Formal Sector Earnings Gap in Serbia


  • Blunch, Niels-Hugo

    () (Washington and Lee University)


While the informal sector has received widespread attention in academic and policy arenas in recent decades, knowledge gaps and controversies remain. First, while the evidence is starting to emerge, there is still more to learn about the formal-informal sector earnings gap of the former Socialist regimes of Eastern Europe and Central Asia. Second, the widespread debate in both academic and policy circles of what constitutes "the" informal sector has led to substantial controversy and different definitions. Third, our knowledge is scarce regarding the impact of the current financial crisis on labor markets – both formal and informal. By examining the incidence and determinants of the formal-informal sector earnings gap for adult male dependent employees using two identical, nationally representative labor force surveys for Serbia – one just prior to the impact of the recent international financial crisis and one about a year into the crisis – for three alternative measures of informality, this paper adds to our understanding in all three of these dimensions. Among the main results is the finding of a substantively large formal-informal sector gap (favoring the formal sector), which appears to have decreased substantially overall following the crisis. Additional results suggest that formal sector workers are concentrated in better paying industries and occupations and have more education and other favorable characteristics than informal sector workers, and at the same time also have higher returns to their (already favorable) characteristics overall, with education and part-time status consistently among the main drivers of the observed gap.

Suggested Citation

  • Blunch, Niels-Hugo, 2015. "Bound To Lose, Bound To Win? The Financial Crisis and the Informal-Formal Sector Earnings Gap in Serbia," IZA Discussion Papers 9231, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp9231

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    References listed on IDEAS

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    Cited by:

    1. Aysit Tansel & Halil Ibrahim Keskin & Zeynel Abidin Ozdemir, 2015. "Is There An Infırmal Employment Wage Penalty in Egypt?," ERC Working Papers 1508, ERC - Economic Research Center, Middle East Technical University, revised Sep 2015.
    2. Gorana Krstić, 2016. "Why Income Inequality Is So High In Serbia: Empirical Evidence And A Measurement Of The Key Factors," Economic Annals, Faculty of Economics, University of Belgrade, vol. 61(210), pages 23-46, July - Se.

    More about this item


    international financial crisis; formal-informal sector earnings gap; labor market segmentation; earnings decomposition; detailed earnings decomposition; Serbia;

    JEL classification:

    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • 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
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market

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