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What Aspects of Formality Do Workers Value? Evidence from a Choice Experiment in Bangladesh

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  • Minhaj Mahmud
  • Italo A. Gutierrez
  • Krishna B. Kumar
  • Shanthi Nataraj

Abstract

In this study, we use a choice experiment to elicit workers' willingness to pay (WTP) for specific job benefits typically associated with formal employment (contracts, termination notice, paid leave, preferred working hours, and access to a retirement account). We find that workers most value job stability: the average worker would be willing to give up 19 percent of monthly income for a 6-month contract, 27 percent for a 1-year contract and 44 percent for a permanent contract (relative to no contract). Thirty days' of termination notice would also be valued at about 12 percent of monthly income. Using a latent class model, we explore preference heterogeneity and find that government workers are more likely to place a higher value on long-term contracts than private sector employees, while casual workers are more likely to have a particularly strong preference for higher salary, and a relatively low WTP for various benefits. This heterogeneity may be driven by sorting or loss aversion. Our work also lends support to the use of choice experiments to overcome the challenges associated with estimating WTP for specific job benefits from hedonic wage regressions or from observed job durations.

Suggested Citation

  • Minhaj Mahmud & Italo A. Gutierrez & Krishna B. Kumar & Shanthi Nataraj, 2017. "What Aspects of Formality Do Workers Value? Evidence from a Choice Experiment in Bangladesh," Working Papers WR-1197, RAND Corporation.
  • Handle: RePEc:ran:wpaper:wr-1197
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    References listed on IDEAS

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    Cited by:

    1. Bossavie,Laurent Loic Yves & Cho,Yoonyoung & Heath,Rachel, 2019. "The Effects of International Scrutiny on Manufacturing Workers : Evidence from the Rana Plaza Collapse in Bangladesh," Policy Research Working Paper Series 9065, The World Bank.
    2. Italo A. Gutierrez & Krishna B. Kumar & Minhaj Mahmud & Farzana Munshi & Shanthi Nataraj, 2019. "Transitions between informal and formal employment: results from a worker survey in Bangladesh," IZA Journal of Migration and Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 9(1), pages 1-27, December.
    3. Ricardo Hausmann & Ljubica Nedelkoska & Sehar Noor, 2020. "You Get What You Pay For: Sources and Consequences of the Public Sector Premium in Albania and Sri Lanka," CID Working Papers 376, Center for International Development at Harvard University.
    4. 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).

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    More about this item

    JEL classification:

    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J81 - Labor and Demographic Economics - - Labor Standards - - - Working Conditions

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