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Informal Employment in a Growing and Globalizing Low-income Country

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  • Brian McCaig
  • Nina Pavcnik

Abstract

We document several facts about workforce transitions from the informal to the formal sector in Vietnam, a fast growing, industrializing, and low-income country. First, younger workers, particularly migrants, are more likely to work in the formal sector and stay there permanently. Second, the decline in the aggregate share of informal employment occurs through changes between and within birth cohorts. Third, younger, educated, male, and urban workers are more likely to switch to the formal sector than other workers initially in the informal sector. Poorly educated, older, female, rural workers face little prospect of formalization. Fourth, formalization coincides with occupational upgrading.

Suggested Citation

  • Brian McCaig & Nina Pavcnik, 2015. "Informal Employment in a Growing and Globalizing Low-income Country," NBER Working Papers 20891, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:20891
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    References listed on IDEAS

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    1. Rafael La Porta & Andrei Shleifer, 2014. "Informality and Development," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 109-126, Summer.
    2. Suresh de Mel & David McKenzie & Christopher Woodruff, 2013. "The Demand for, and Consequences of, Formalization among Informal Firms in Sri Lanka," American Economic Journal: Applied Economics, American Economic Association, vol. 5(2), pages 122-150, April.
    3. Abhijit V. Banerjee & Esther Duflo, 2007. "The Economic Lives of the Poor," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 141-168, Winter.
    4. Rafael Dix‐Carneiro, 2014. "Trade Liberalization and Labor Market Dynamics," Econometrica, Econometric Society, vol. 82(3), pages 825-885, May.
    5. repec:aea:aecrev:v:108:y:2018:i:7:p:1899-1941 is not listed on IDEAS
    6. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July.
    7. Brian McCaig & Nina Pavcnik, 2013. "Moving out of Agriculture: Structural Change in Vietnam," NBER Working Papers 19616, National Bureau of Economic Research, Inc.
    8. Rauch, James E., 1991. "Modelling the informal sector formally," Journal of Development Economics, Elsevier, vol. 35(1), pages 33-47, January.
    9. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
    10. Gollin, Douglas, 2008. "Nobody's business but my own: Self-employment and small enterprise in economic development," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 219-233, March.
    11. Brian McCaig & Nina Pavcnik, 2018. "Export Markets and Labor Allocation in a Low-Income Country," American Economic Review, American Economic Association, vol. 108(7), pages 1899-1941, July.
    12. Brian, McCaig, 2011. "Exporting out of poverty: Provincial poverty in Vietnam and U.S. market access," Journal of International Economics, Elsevier, vol. 85(1), pages 102-113, September.
    13. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-142, March.
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    Citations

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    Cited by:

    1. Hiroyuki Kasahara & Yawen Liang & Joel Rodrigue, 2013. "Does Importing Intermediates Increase the Demand for Skilled Workers? Plant-level Evidence from Indonesia," CESifo Working Paper Series 4463, CESifo Group Munich.
    2. Pamela Bombarda & Sarra Ben Yahmed, 2017. "Gender, Informal Employment and Trade Liberalization in Mexico," THEMA Working Papers 2017-03, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    3. Prachi Gupta & Matthias Helble, 2018. "Adjustment to Trade Opening: The Case of Labor Share in India’s Manufacturing Industry," Working Papers id:12810, eSocialSciences.
    4. Dwayne Benjamin & Loren Brandt & Brian McCaig, 2017. "Growth with equity: income inequality in Vietnam, 2002–14," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 15(1), pages 25-46, March.
    5. Brian McCaig & Jordan Nanowski, 2019. "Business Formalisation in Vietnam," Journal of Development Studies, Taylor & Francis Journals, vol. 55(5), pages 805-821, May.
    6. repec:eee:ecosys:v:42:y:2018:i:4:p:556-568 is not listed on IDEAS
    7. Leslie A. Martin & Shanthi Nataraj & Ann E. Harrison, 2017. "In with the Big, Out with the Small: Removing Small-Scale Reservations in India," American Economic Review, American Economic Association, vol. 107(2), pages 354-386, February.
    8. Fan, Haichao & Li, Yao Amber & Yeaple, Stephen R., 2018. "On the relationship between quality and productivity: Evidence from China's accession to the WTO," Journal of International Economics, Elsevier, vol. 110(C), pages 28-49.
    9. Kumar, Krishna B. & Mahmud, Minhaj & Nataraj, Shanthi & Cho, Yoon Y., 2019. "Employer and Employee Preferences for Worker Benefits: Evidence from a Matched Survey on the Bangladesh Informal Sector," IZA Discussion Papers 12064, Institute of Labor Economics (IZA).
    10. Nina Pavcnik, 2017. "The Impact of Trade on Inequality in Developing Countries," NBER Working Papers 23878, National Bureau of Economic Research, Inc.
    11. Kasahara, Hiroyuki & Liang, Yawen & Rodrigue, Joel, 2016. "Does importing intermediates increase the demand for skilled workers? Plant-level evidence from Indonesia," Journal of International Economics, Elsevier, vol. 102(C), pages 242-261.
    12. Gupta, Prachi & Helble, Matthias, 2018. "Adjustment to Trade Opening: The Case of Labor Share in India's Manufacturing Industry," ADBI Working Papers 845, Asian Development Bank Institute.
    13. Dang, Thang, 2017. "Education as Protection? The Effect of Schooling on Non-Wage Compensation in a Developing Country," MPRA Paper 79223, University Library of Munich, Germany.
    14. repec:eee:inecon:v:111:y:2018:i:c:p:159-176 is not listed on IDEAS
    15. Christine Dieterich & Anni Huang & Alun H. Thomas, 2016. "Women’s Opportunities and Challenges in Sub-Saharan African Job Markets," IMF Working Papers 16/118, International Monetary Fund.
    16. McKay, Andy & Newell, Andrew T. & Rienzo, Cinzia, 2018. "Job Satisfaction among Young Workers in Eastern and Southern Africa: A Comparative Analysis," IZA Discussion Papers 11380, Institute of Labor Economics (IZA).

    More about this item

    JEL classification:

    • F0 - International Economics - - General
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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