Informal-Formal Worker Wage Gap in Turkey : Evidence From A Semi-Parametric Approach

Using individual level data from Turkstat Household Labor Force Survey for 2005-2009 period, we analyze whether there is a wage gap between formal and informal workers with comparable observable characteristics, where the formality of employment is defined with respect to individuals' registry status to compulsory Social Security System. We find that both standard Mincerian regressions and the propensity score matching exercises indicate a sizable formal employment wage premium in Turkey. This contrasts with earlier studies stating that findings on wage gap between formal and informal workers is not robust to estimation methodology. However, we find that the estimation methodology matters for the relative size of formal employment wage premium across demographic groups : While Mincerian regressions give similar estimates for formal-informal wage gap across males and females or old and young workers, the propensity score matching suggest that earning inequality due to differences in formality status is higher among females and young workers.