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Informal versus Formal: A Panel Data Analysis of Earnings Gaps in Madagascar

Author

Listed:
  • Nordman, Christophe Jalil

    () (IRD, DIAL, Paris-Dauphine)

  • Rakotomanana, Faly

    (National Institute of Statistics (INSTAT))

  • Roubaud, François

    () (IRD, DIAL, Paris-Dauphine)

Abstract

Little is known about the informal sector's income structure vis-à-vis the formal sector, despite its predominant economic weight in developing countries. While most of the papers on this topic are drawn from (emerging) Latin American, Asian or some African countries, Madagascar represents an interesting case. So far, very few studies in general, even less so in Sub-Saharan Africa, used panel data to provide evidence of the informal sector heterogeneity. Taking advantage of the 1-2-3 Surveys in Madagascar, a four-wave panel dataset (2000-2004), we assess the magnitude of various formal/informal sector earnings gaps. Is there an informal sector job earnings penalty? Do some informal sector jobs provide pecuniary premiums and which ones? Do possible gaps vary along the earnings distribution? Ignoring distributional issues is indeed a strong limitation, given the compound question of how informality affects earnings inequality. We address heterogeneity issues at three different levels: the worker, the employment status (wage employment vs. self-employment) and the earnings distribution. Standard earnings equations are estimated at the mean and at various conditional quantiles of the earnings distribution. The results suggest that the sign and magnitude of the formal-informal sector earnings gaps highly depend on the workers' employment status and on their relative position in the earnings distribution. In the case of a poor and fragile country like Madagascar, these findings provide new and robust empirical backups for the existence of a mix between the traditional exclusion vs. exit hypotheses of the informal sector.

Suggested Citation

  • Nordman, Christophe Jalil & Rakotomanana, Faly & Roubaud, François, 2016. "Informal versus Formal: A Panel Data Analysis of Earnings Gaps in Madagascar," IZA Discussion Papers 9970, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp9970
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    References listed on IDEAS

    as
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    Cited by:

    1. María del Pilar Casal & Bradford L. Barham, 2013. "Women’s Mobility in the Argentine Labour Market," Económica, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 59, pages 88-125, January-D.
    2. Kostas Mavromaras & Stephane Mahuteau & Kostas Mavromaras & Sue Richardson & Rong Zhu, 2017. "Public–Private Sector Wage Differentials in Australia," The Economic Record, The Economic Society of Australia, vol. 93, pages 105-121, June.
    3. repec:eee:wdevel:v:96:y:2017:i:c:p:520-528 is not listed on IDEAS
    4. Philippe De Vreyer & François Roubaud, 2013. "Urban Labor Markets in Sub-Saharan Africa," World Bank Publications, The World Bank, number 15808.

    More about this item

    Keywords

    panel data; informal sector; earnings gap; transition matrix; Madagascar;

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • 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
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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