Informal Wage Research Articles

Vulnerability of the informal sector in an emerging economy: a multi-level analysis

ABSTRACT This study investigates the determinants of vulnerability and the vulnerability gap between workers in an emerging economy’s formal and informal employment sectors. To this end, a multi-level model combined with a fixed-effect model was employed to capture idiosyncratic and covariate vulnerabilities. The results from the multi-level model show signs of a ‘cycle of vulnerability’ for informal workers, in that covariate shocks indirectly impact idiosyncratic shocks, which in turn leads them to suffer more from covariate vulnerability. Compared to those with formal employment, informal workers are 1.2% more likely to fall into poverty in the future. Among wage workers, informal wage workers had higher vulnerability indices than formal sector workers, with a vulnerability gap of 3.1%. These gaps are more significant when accounting for time-invariant unobserved heterogeneity. Based on these results, it is vital to consider idiosyncratic and covariate components to reduce vulnerability in the informal sector. Specifically, for informal workers who engage in business and industry sectors at high risk of income shocks, the government should monitor and provide them with legal frameworks that will prevent them from being exposed to a high risk of vulnerability. Additionally, a policy expanding voluntary social insurance should be promoted to support informal groups.

Early retirement incentives and transition into informality

This paper explores the impact of a super early retirement incentive that allowed men to retire as early as 44 years old in Turkey in 1992. Relying on a Fuzzy Regression Discontinuity Design, I find that taking up the incentives significantly reduced the labor force participation of middle-aged men in Turkey. Analysis by education categories suggests that the incentives had an impact on both the skilled and unskilled labor force. I find that the policy-induced take-up of pension benefit receipt significantly increased the probability of moving into informal employment contracts. Findings suggest that the probability of informal wage employment increased for low-skilled individuals while the probability of informal self-employment probability increased for high-skilled individuals. Among low-skilled workers, the incentives seem to have relaxed credit constraints.

Trading permits and informal entrepreneurship: evidence from South Africa

Abstract We present an empirical analysis of the relationship between trading permits, informal entrepreneurship and unemployment. We exploit a unique regulatory framework of the informal sector in South Africa to estimate the effects of trading permits in the informal sector using individual panel data. To provide a causal effect of these regulations, we apply a difference-in-difference strategy. Trading permits decreased informal entrepreneurship and informal trading by respectively 11.5 per cent and 9.6 per cent for those who were working in the informal sector. We investigate potential indirect effects on formal entrepreneurship, unemployment, and informal wage employment. The adoption of trading permits in the informal sector significantly increases the probability of being unemployed by 4.5 per cent and significantly decreases the probability of being informally employed by 15.5 per cent for those who were in the informal sector. The results suggest that a policy increasing the costs of informality might reduce informality but at the cost of rising unemployment.

Left behind in Covid times: the impact of the pandemic on job loss and job finding rates of vulnerable groups in Serbia

Purpose This paper aims to analyse COVID-19’s effects on job loss and job finding rate in Serbia, focusing on groups with already low employment before the pandemic, such as youth, women, low-educated and rural areas. Design/methodology/approach The authors exploit the panel structure of the Labour Force Survey (LFS) data for Serbia to analyse if the impact of the pandemic on transition probabilities was different for vulnerable groups and their counterparts during the first year of the pandemic. Findings The results indicate that stagnation in overall employment growth in Serbia during the first year of the COVID-19 crisis resulted from decreases in new hiring rather than increases in job losses. However, trends differed for vulnerable groups. Young workers faced the highest increase in job losses, partly due to their higher shares in informal wage employment. In contrast, decreases in job finding rates were particularly high among low-educated and in rural areas. Practical implications After the first year of the COVID-19 pandemic, employment opportunities of vulnerable groups further deteriorated, and already existing labour market inequalities were exacerbated. These effects are partially due to policies implemented to mitigate the crisis, which focused on preserving permanent employment while leaving vulnerable workers and groups unprotected. Originality/value The authors investigate the annual effects of the first year of the pandemic in a country with a large informal sector and explore the role of vulnerable groups’ job characteristics in transition changes.

Krieg, Verteilungskonflikt, Reparationen: die deutsche Inflation von 1920 bis 1923

Abstract Germany’s hyperinflation resulted from a confluence of several factors, all of which contributed to a temporary breakdown in state capacity and to unsustainable public sector deficits. Wartime debt deflated by 90% already in 1920. Informal wage indexation and failure to enforce collection of a new progressive income tax contributed to recurrent inflation. Unsustainable reparations were met by purchasing gold abroad, further accelerating inflation. Conflict over reparation arrears resulted in the military occupation of the Ruhr industry district in early 1923. Stabilisation occurred after informal moratoria on both international and internal conflict, allowing for budget stabilisation and a two-step currency reform, as well as a return to gold in 1924.

Informal and Formal Wage Differences Based on Cohorts in Indonesia

Labor market dualism has caused a persistent wage gap between formal and informal workers in Indonesia. This study aimed to decompose the wage difference between formal and informal workers based on cohorts in Indonesia and further analyze the factors that influence this gap. This allowed us to identify the structure of the labor market and whether it tends to be segmented or competitive. By controlling the cohort, the estimation result was compatible with the human capital accumulation argument. The data sourced from the 2010 and 2019 National Labor Surveys comprised 581,312 and 503,313 workers, respectively. This study used the threefold Heckman selection-biased corrected Blinder–Oaxaca decomposition technique. The results showed that the wage gap between formal and informal workers is decreasing, especially among the younger cohort. Among this cohort, the labor market is still segmented, although the degree of segmentation is lower. In contrast, the older cohort labor market is more competitive but at a decreasing rate. A further decomposition showed that education has affected the wage gap between young and old cohorts. However, this effect is diminishing. In addition, differences in institutional labor market settings such as the wage system and occupational health and safety systems have increased the wage gap. The findings imply that equitable access to education for the younger cohort and the improvement of labor market institutions can reduce the gap between formal and informal wages.

Pemodelan Spasial pada Data Produk Domestik Regional Bruto di Pulau Jawa Sebelum dan Ketika Pandemi

One of the regional economic indicators is GRDP, GRDP or gross regional domestic product explains the ability of the region to manage and utilize the resources in the area. In 2020, the Covid-19 pandemic entered Indonesia and caused the economy to stagnate. This has a negative effect on national economic activities and reduces the value of GRDP. To overcome these problems, we will look for factors that are thought to influence the value of GRDP. In the process there are obstacles, namely incomplete data (there are missing values). To overcome the missing values, imputation will be carried out using the k-nearest neighbor imputation method. The spatial effect test was conducted to determine whether there was a spatial effect on the data. Based on the test, it is known that there is spatial heterogeneity, so that the modeling of the GRDP value is carried out using the geographically weighted regression model. The GWR method can handle spatial non-stationary, so that it can be seen what variables significantly affect the value of GRDP in each district/city on the island of Java. Before the pandemic, the variables that affected the value of GRDP in Java were local income, average informal wages, realization of domestic investment, and the number of unemployed. During the pandemic, the variables that affect the value of GRDP in Java are local revenue, the realization of foreign investment, and the number of unemployed.

The impact of head working characteristics and labour statuses on household poverty: Evidence in Vietnam

The study follows a worker-based approach and distinguishes wage workers and self-employed workers. Our hypotheses stress the role of head worker characteristics in explaining the probability of a household being poor. Using data from the Vietnam Household Living Standard Survey 2014 (VHLSS 2014), we estimate a probit regression model. The result shows that households with the head are informal wage earners, have the highest risk of living in poverty, while with the head are formal wage earners enjoy the least. The effects of self-employed households fall between those two extremes. The weaknesses of informal employment are reflected in four main aspects: low labour quality, low education level, low working time (hours/year), and lack of social insurance or labour protection. The findings can serve as evidence for formulating effective policies related to poverty reduction.

The China Shock Impact on Labor Informality: The Effects on Brazilian Manufacturing Workers

The vigorous growth of the Chinese economy together with its increasingly successful role in international trade may have profoundly impacted developing countries. This study examines the large increase in the international trade exposure of the Brazilian economy during 2000–2012 to assess the impacts of import competition on its manufacturing formal and informal labor markets. In this period, import penetration grew by more than 20 percent in Brazil, and the share of the import penetration originating in China increased from 3 to 20 percent. At the same time, the share of informal workers in manufacturing declined from 27 to approximately 15 percent. Employing a switching regression model and Brazilian household survey data, this study finds that a greater industry-level Chinese and ‘rest of the world’ import penetration increases the likelihood of jobs becoming informal at different intensities, and these effects are smaller in unskilled-labor intensive industries and manufacturing states. Additionally, both types of import penetration positively impact the average informal wage. In contrast, the estimates suggest that a larger Chinese import penetration reduces average formal wages, while imports from elsewhere have the opposite effect. The results also indicate that the magnitude of the effects on wages are moderated by the unskilled labor intensity of the industry and whether the worker is located in a manufacturing state.

COVID-19 en dagloners in die Suid-Afrikaanse ekonomie: Die impak op hul lewens en daaglikse bestaan

Die Suid-Afrikaanse ekonomie was reeds voor die COVID-19-pandemie in 'n benarde posisie. Dagloners en andere in die informele ekonomie was struktureel selfs meer kwesbaar vir so 'n eksogene skok. Die doel van hierdie oorsigstudie was om die impak van die COVID-19-pandemie op die lewensomstandighede van dagloners op die navorsingsagenda te plaas. 'n Oorsig van tersaaklike elemente uit die enigste nasionaal verteenwoordigende databasis van dagloners, afkomstig vanuit die Blaauw (2010) studie, in Suid-Afrika, was die vertrekpunt. Daarna is die jongste beskikbare navorsingsinligting oor veranderinge in die daglonermark gebruik om die moontlike kort-, medium- en langtermynimpak van die pandemie te bespreek. In 2008 was die dagloners in die Wes-Kaap en Gauteng se loonvlakke hoër as dié van die dagloners in die res van Suid-Afrika. Selfs dagloners in hierdie twee provinsies was steeds kwesbaar met lae en onsekere inkomstevlakke. Sedert 2008 het makro-ekonomiese faktore en 'n derde golf van oorgrensmigrasie 'n verdere verswakking in dagloners se posisie meegebring. Die vraag na hul arbeid het verminder en reële lone het in verskeie stede gedaal. Die COVID-19-pandemie het dagloners op die kort termyn voor hongersnood te staan gebring. Die talle mense wat vanweë die pandemie hul formele werk verloor het of nog gaan verloor sal die daglonermark onder verdere druk plaas. Die minimum loonvlak waarvoor dagloners bereid is om te werk, sal selfs verder daal. In die lang termyn kan duisende van die leerlinge wat hul skoolopleiding te midde van die pandemie staak ook dagloners word, met rampspoedige gevolge vir die maatskaplike bestel in Suid-Afrika.

Wage Difference Between Formal Sector and Informal Sector Jobs; With Special Reference to the Labour Market in Sri Lanka

It is globally understood that wage-based employment structure and wages are a central aspects of the labour force at work. The informal sector is ranging to a broader concept that is difficult to define. The formal–informal wage gap is crucial to understand labour market informality, especially in developing countries with the large informal sectors. The basic model is taken from Mincer (1974), and the study is primarily based on secondary data. The new dummy variable of Job_type and an interactive term were incorporated into the Mincer earning function to analyse wage differences between formal sector and informal sector jobs. The study concludes that there is a wage gap between the a formal and informal sector. Moreover, if a person engages in formal sector job with good education qualification and good working experience, he will be entitled for a higher wage rate. Policies that promote education and equal opportunities for workers in both formal and informal sectors would improve earnings for many workers by increasing productivity and incomes.

A supermultiplier model of the natural rate of growth

AbstractWe propose a supermultiplier model that includes formal and informal wage redistributive devices enabling everyone in the population to satisfy their primary needs. By introducing population growth and technical progress into the model, we show that wage redistribution gives rise to an autonomous consumption component, the growth rate of which corresponds to the natural rate of growth. The three main outcomes of the model are as follows: (a) Harrodian knife‐edge instability can be tamed, (b) the long‐run rate of growth of the economy converges toward the natural rate of growth, and (c) the rate of employment stabilizes but at a level that can differ from that of full employment.

Informal Wage Labour and Capital-Labour Struggles in Karnataka’s Automotive Sector

Abstract This article examines the critical role of informal wage labour and capital labour struggles in India’s automotive and auto components sector in the post reform period. This is viewed through the analytical lens of the labour process and draws on fieldwork conducted in Karnataka in 2014. The labour process emphasises conflict between capital and labour as critical to understanding differentiation of the workforce. This contrasts with mainstream theories of labour flexibility which are narrowly based on efficiency motives of the firm. Taking a labour process perspective requires analysis at different levels of the economy, linking the firm level with the broader socio-economic forces at play. This demonstrates how differentiation of the workforce emerges from the way in which capital accumulation proceeds. At the firm level, the division of labour is augmented through the adoption of technology, organisation of production, disciplining workers, and on-going capital-labour struggles. Firms actively reshape the composition of the workforce to restrict the bargaining power of labour and reduce the value of labour power. This includes a growing preference for non-unionised rural and semi-rural workers and female workers, a dynamic observed throughout the automotive supply chain. The asymmetric balance of power between capital and labour and the state’s role in institutionalising a flexible labour regime are critical forces shaping capital accumulation, with implications for the structure of the workforce. Finally, the article outlines a new location of labour discontent in Karnataka’s automotive sector. This reveals that workers’ struggles against capital are shifting to include the issue of informal wage labour in the organised sector.

Informal pay gaps in good and bad times: Evidence from Russia

Informal work is traditionally large in Russia and has further increased in the recent years. We explore the implications of this shift in terms of wage dynamics. Our characterization is based on the estimation of informal pay gaps at the mean and along the wage distribution, relying on the Russian Longitudinal Monitoring Survey for 2003–2017. Our approach comprises three original features: we rely on unconditional quantile effects of informality, we incorporate quantile-specific fixed effects using a tractable approach, and we suggest a treatment of the incidental parameter bias. Over the whole period, informal wage penalties are relatively small and do not suggest heavily segmented labor markets, even at low wage levels. Yet, in the past decade, a substantial negative selection into informal employment and self-employment has taken place, on average and especially at low earnings. Economic downturns and labor market policies have likely contributed to the shakeout of less productive workers in the formal sector, making the low-tier informal sector more of a last resort.

Good jobs and bad jobs for Indonesia's informal workers

AbstractIn contrast to the majority of studies that have treated informal workers as a single homogeneous group, this article accounts for the possibility of “winners” and “losers” among informal workers. Applying unconditional quantile regressions to data from the Indonesian Family Life Survey, the authors are able to estimate the formal–informal wage gaps for different segments of the earnings distribution. Although the evidence confirms the existence of a substantial earnings penalty for many informal workers, there is also a group who earn roughly similar incomes to formal workers. The findings are consistent with Fields's (1990 and 2005) model of heterogeneous informal employment.

The Arab inequality puzzle: the role of income sources in Egypt and Tunisia

ABSTRACT Egypt and Tunisia are perceived to have high levels of inequality, yet based on standard measures, inequality in these two countries is not unusually high. In this study we explore a different dimension of inequality in Egypt and Tunisia by using a more complete measure of income and decomposing inequality by income sources (factor components). We find that higher-income households have more income sources than lower-income ones. Informal wage work and earnings from household enterprises are more common in Egypt than Tunisia, while formal wage work, pensions, and social assistance are more common in Tunisia. Social assistance does little to offset income inequality in either country. Enterprise earnings (in Egypt) and agricultural earnings (in Tunisia) as well as rent and other capital income in both countries play a large role in inequality. High inequality in these non-wage income sources and unequal access to income sources tied to wealth and capital may help explain why inequality is perceived to be high.

The economic activities of sub-Saharan immigrants: informal sector and low wages

Immigration is a social phenomenon that leads to the immigrant’s sociological and economic reorganization, the immigrant often finds himself obliged to overcome the challenges of the economic integration into the host society. So, this study is an analysis of the economic activities of 102 sub-Saharan immigrants who live and work in the urban space of Rabat, and one semi-structured questionnaire is used to explores the specificities of the sectors of their economic activities. The results obtained confirm the findings of various authors affirming the recourse of immigrants to informal economic activity sectors generating low wages.

The Determinant Factors of Informal Female Employment: Analyzing the Professional Choices of Women in Grand Casablanca, Morocco

The Determinant Factors of Informal Female Employment: Analyzing the Professional Choices of Women in Grand Casablanca, Morocco Abdelaziz KHALFAOUI, Abdelhak BZIOUI Abstract Informal jobs represent a significant part of the Moroccan economy (around 40% of total employment in 2014). The considerable weight of informal activities raises questions about the personal characteristics of employees within the different segments of the Moroccan labor market. Statistical analysis in multinomial logistic regression of the determinants of informal female employment in the Grand Casablanca region reveal glaring precariousness of the informal wage of Moroccan women. According to this study, this status is dedicated to very young women, ill-educated, born close to their job, and who aspire to a better status than their current one and that ultimately informal employment can hardly be associated with an occupational choice. Furthermore, the differences between formal and informal assets in terms of human capital and socio-demographic profiles reinforce the thesis of the segmentation of the Moroccan labor market (formal / informal). The precariousness of the status of women in the labor market is still a reality despite the political efforts made recently by the Moroccan authorities. Full Text: PDF DOI: 10.15640/jeds.v9n1a10

Structural Transformation, Service Sector Growth and Poverty Alleviation: The Role of Formal–Informal Interaction and Rising Informal Wage

The motivation of this article is to develop a theoretical mechanism on the interaction between formal and informal sectors and rising informal wage, in the process of service sector growth. Based on empirical support for service sector growth, structural change, higher employment of labour in unorganised sector and rising informal wage in the Indian context, this article develops a theoretical model on the formal–informal interaction in labour employment using a trade-theoretic general equilibrium framework. The results show that with the expansion of capital-intensive, organised service sector, following capital investment in the country, the informal, non-traded intermediate sector, which supplies inputs to the formal service sector, expands with greater employment. The labour-intensive domestic sector of consumer services declines, with the result that the price of consumer services rises, leading to rise in informal wage rate.

Investigating the subjective well-being of the informally employed: A case study of day labourers in Windhoek and Pretoria

Orientation: Day labouring is becoming more frequent in developing countries. Long spells of unemployment and the uncertainty of informal wage employment impact negatively on the subjective well-being (SWB) of day labourers. Research purpose: The aim of the article was to investigate the level and possible determinants of the SWB of day labourers in Pretoria and Windhoek. Motivation for the study: Up to now, only one study has been carried out in South Africa on the SWB of day labourers and none in Namibia. This study aimed to start filling this gap in the literature. The choice of the two cities was based on their status as the capital cities of two countries that are both experiencing increasing numbers of day labourers. Research design, approach and method: A mixed-method research design and purposeful sampling were used to obtain representative samples. Data were sourced from comparable surveys amongst day labourers in the two cities between 2015 and 2017. Questionnaires with quantitative and qualitative sections were completed during structured interviews with 290 and 80 day labourers in Pretoria and Windhoek respectively. The ordinary least squares model and ordered-probit analysis were employed to analyse the data. Main findings: In Pretoria, the number of dependents, the living conditions and whether they had a full-time job before were all significant in explaining the SWB of the day labourers. In Windhoek, education levels, total days without food, staying with their families and being a foreigner were also significant. Practical/managerial implications: The needs of the informally employed must be addressed in the integrated development plans of municipalities and integrated with day labour worker centres. Contribution/value-add: This is the first study to analyse SWB amongst day labourers in Namibia and lays the foundation for future expanded studies.