Abstract
Despite the striking presence in many developing economies of the two distinctive features of high levels of income inequality and significant informal employment, the literature addressing the relationship between these features is scarce, especially for Latin America. In this paper, we highlight the ambiguous relationship between inequality and informality by identifying the various factors that may affect it. We then empirically test this relationship using panel data pertaining to Latin America between 1990–2018. In these context‐specific conditions, our findings reveal a positive association between formalization in the labour market and labour income equality.
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