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Earnings premiums and penalties for self-employment and informal employees around the world

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  • Gindling,T. H.
  • Mossaad,Nadwa
  • Newhouse,David Locke

Abstract

This paper examines the earnings premiums associated with different types of employment in 73 countries. Workers are divided into four categories: non-professional own-account workers, employers and own-account professionals, informal wage employees, and formal wage employees. Approximately half of the workers in low-income countries are non-professional own-account workers and the majority of the rest are informal employees. Fewer than 10 percent are formal employees, and only 2 percent of workers in low-income countries are employers or own-account professionals. As per capita gross domestic product increases, there are large net shifts from non-professional own-account work into formal wage employment. Across all regions and income levels, non-professional own-account workers and informal wage employees face an earnings penalty compared with formal wage employees. But in low-income countries this earnings penalty is small, and non-professional own-account workers earn a positive premium relative to all wage employees. Earnings penalties for non-professional own-account workers tend to increase with gross domestic product and are largest for female workers in high-income countries. Men earn greater premiums than women for being employers or own-account professionals. These results are consistent with compensating wage differentials and firm quasi-rents playing important roles in explaining cross-country variation in earnings penalties, and raise questions about the extent to which the unskilled self-employed are rationed out of formal wage work in low-income countries.

Suggested Citation

  • Gindling,T. H. & Mossaad,Nadwa & Newhouse,David Locke, 2016. "Earnings premiums and penalties for self-employment and informal employees around the world," Policy Research Working Paper Series 7530, The World Bank.
  • Handle: RePEc:wbk:wbrwps:7530
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    Cited by:

    1. Calì, Massimiliano & Miaari, Sami H., 2018. "The labor market impact of mobility restrictions: Evidence from the West Bank," Labour Economics, Elsevier, vol. 51(C), pages 136-151.
    2. Dike, Onyemaechi, 2019. "Informal employment and work health risks: Evidence from Cambodia," MPRA Paper 92943, University Library of Munich, Germany, revised 24 Mar 2019.
    3. repec:spr:soinre:v:141:y:2019:i:2:d:10.1007_s11205-018-1846-y is not listed on IDEAS
    4. Joanna Tyrowicz & Magdalena Smyk, 2019. "Wage Inequality and Structural Change," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 141(2), pages 503-538, January.

    More about this item

    Keywords

    Labor Management and Relations; Skills Development and Labor Force Training; Labor Policies; Income; Labor Markets;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market

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