Formal and informal sector employment in urban areas of Bolivia

Abstract

Earnings and labour market participation in urban areas of Bolivia are analyzed, using household level survey data from 1989. We distinguish between non-participation, formal sector work, and informal sector work, and estimate separate wage equations for informal and formal sector. Two types of models are analyzed: in the first, the informal sector is seen as a buffer zone between formal sector and non-participation, while in the second, there is no ordering among sectors. We find that accounting for selectivity substantially affects wage equation estimates. The direction of the selectivity effect is the same according to both models, but its magnitude varies, in particular for the informal sector. Other results are quite robust: wages are higher in larger local labour markets. In both sectors females of ethnic minorities are underpaid.