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Self-employment and labor turnover - cross-country evidence

Author

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  • Maloney, William F.

Abstract

The author uses cross-country data from Latin America and OECD countries to test the predictions of a simple efficiency wage model (Krebs and Maloney 1998) about the share of the workforce in self-employment and the rate of labor turnover across the process of development and demographic transition. The model is supported, with numerous demographic, economic, and labor market institutions appearing as important determinants of both self-employment and turnover. Social security taxes on firms and barriers to firing workers appear to reduce the size of the formal sector, and barriers to firing do appear to reduce turnover. But the level of formal sector productivity, real interest rates, and education levels generally have a greater impact. A central lesson is that it is misleading to use the size of the informal self-employment sector and the rate of labor turnover as indicators of distortion or rigidity without first adjusting for these factors. Somewhat speculatively, the author offers adjusted measures that suggest that Latin American labor markets are not especially distorted and are about average in flexibility, with important exceptions. Central to the theoretical framework is the view that self-employment is a desirable destination for many salaried workers rather than the disadvantaged sector of a labor market segmented by union - or government - induced rigidities. To prevent the loss of investment in training to the informal sector, firms will pay above market-clearing"efficiency wages", in the process creating unemployment or segmentation that may cut across lines of formality.

Suggested Citation

  • Maloney, William F., 1999. "Self-employment and labor turnover - cross-country evidence," Policy Research Working Paper Series 2102, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2102
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Mathan Satchi & Jonathan Temple, 2006. "Growth and labour markets in developing countries," CEDI Discussion Paper Series 06-12, Centre for Economic Development and Institutions(CEDI), Brunel University.
    2. Arias, Omar & Blom, Andreas & Bosch, Mariano & Cunningham, Wendy & Fiszbein, Ariel & Lopez Acevedo, Gladys & Maloney, William & Saavedra, Jaime & Sanchez-Paramo, Carolina & Santamaria, Mauricio & Siga, 2005. "Pending issues in protection, productivity growth, and poverty reduction," Policy Research Working Paper Series 3799, The World Bank.
    3. Guillaume Destré & Valentine Henrard, 2004. "The determinants of occupational choice in Colombia : an empirical analysis," Cahiers de la Maison des Sciences Economiques bla04065a, Université Panthéon-Sorbonne (Paris 1).

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