Informal Wage Research Articles

Global horticultural value chains, labour and poverty in Tanzania

This paper focuses on the effects of emerging global horticultural value chains on labour, rural poverty and inequality in Tanzania, framing the phenomenon in the wider process of socio-economic change after the introduction of neo-liberal reform and the latest agro-transformation policies. While the few empirical studies in Sub Saharan Africa (SSA) have focused almost exclusively on formal labour in foreign companies, this article takes into consideration also informal wage labour. The article is based on 6-months of fieldwork in the northern highlands, as part of a wider research project on contract farming and wage labour in the export-oriented horticultural industry. With regards to labourers, a total of 96 in-depth interviews and 5 focus group discussions were undertaken with formal and informal workers; 96 questionnaires were administered; and 13 semi-structured interviews were conducted with foreign companies, NGOs and local authorities. The paper highlights the substantial use of informal workers by both foreign companies and Tanzanian contract farmers and emphasises the fundamental importance of looking at the informal labour market in evaluating the impacts of emerging value chains on rural poverty. It concludes that global horticultural value chains in Tanzania have little impact on poverty reduction and reinforce the ongoing processes of social differentiation and labour exploitation.

The minimum wage in formal and informal sectors: Evidence from an inflation shock

I estimate the effect of the minimum wage on formal wages, informal wages, and employment in Colombia. I exploit an unexpected increase in the real minimum wage during 1999. My analysis combines unconditional quantile regressions with a differences-in-differences design. I find evidence of wage responses for wages close to the minimum wage. The increases are present in both the informal and formal sectors, and are larger in the formal one. Wages around the minimum increase by around 3 percent in the formal sector for a 10 percentage points larger minimum wage incidence, and by around 1 percent in the informal sector. These increases are smaller than those implied by full compliance to minimum wage policy, but positive for some unaffected workers. This suggests employers partially comply with the minimum wage and use it as a reference. I find slight negative employment effects on the informal sector, but not on the formal sector. The effects in the informal sector are not driven by cross-sectoral effects. The results suggest the minimum wage has a direct impact on the informal labor market, although they may not apply to minimum wage changes in other countries or contexts, or to larger minimum wage increases.

Gender Inequalities in Informal Employment and Wage Gap in Turkish Manufacturing

Gender Inequalities in Informal Employment and Wage Gap in Turkish Manufacturing

Informal Employment and Monthly Wage Earnings: Evidence from Food Processing Firms

Informal Employment and Monthly Wage Earnings: Evidence from Food Processing Firms

Conditions of Employment and Livelihood Security of Informal Workers: A Study of Four Villages in Jalpaiguri District, West Bengal

The article analyses the conditions of employment of informal workers in four different villages with varying livelihood opportunities. Based on the secondary database, it argues that the labor market is characterized by widespread unemployment, and there has been an increase in the share of marginal workers over the years in the study villages, as well as in rural Jalpaiguri. The analysis of primary data reveals that tea cultivation and agriculture were main sources of employment of informal workers; however, these did not provide livelihood security. The wage rate was lower than the legally prescribed minimum wage in West Bengal. Also, the workers, most of whom were either Scheduled Castes or Scheduled Tribes, did not receive year-round employment in the study villages. In the absence of remittances from the migrant workers, a substantial number of households were poor. The research shows that informal wage work in the study area was insufficient for a decent level of living. The article argues that agrarian changes in the study area did not lead to desirable outcomes for substantial sections of the population.

ORGANIZATION OF THE EMISSION OF THE BONDED LOAN OF THE PENSION FUND OF RUSSIA AS A WAY OF FINANCING ITS BUDGET DEFICIT

In recent years, revenues and expenditures of the PFR budget are constantly growing, and their growth is about the same magnitude. The decrease in revenues in 2014 was due to a decrease in allocations from the Federal budget, as well as a change in the legislation on compulsory pension insurance, in accordance with which it was decided to send all insurance contributions at the individual rate to finance the insurance part of the labor pension. Since 2014, there has been a stable deficit. According to forecast data, the budget for the next years is also planned to be deficit. Taking into account that the state pension provision is planned and financed by the target method at the expense of allocations, it can be stated that the deficit of the PFR budget is associated with a shortage of incoming insurance contributions for the payment of insurance pensions. This may be due to the following reasons: a significant increase in the number of old-age pensioners with a relatively stable working-age population; insufficient income in the form of insurance contributions (informal wages, shadow business); lack of alternative sources of funding. With the first problem, the Russian Government decided to fight by an unpopular method - to reduce the increase in the number of pensioners by increasing the retirement age. This, in our view, exacerbates the existing problem of public distrust in the pension system in general and in the pension policy in particular. That in turn, among other factors, is the cause of the second problem - the growth of "gray" wages and unpaid insurance premiums. Thus, these problems need to be solved radically, which requires considerable time and a serious elaborated pension policy of the Government of the Russian Federation. It is proposed to use the issue of a pension bond loan as a measure in the operational management of the pension cash gap and strategic management of the budget deficit of the PFR.

Transitions across labor market states including formal/informal division in Egypt

AbstractThis study examines the worker transitions across labor market states including formal/informal division using panel data of 2006 to 2012 from Egypt. We generate a broad set of facts about labor market dynamics in Egypt. We first develop transition probabilities by gender across different labor market states including formal/informal sectors utilizing Markov transition processes. Government employment is the most persistent labor market state for both men and women and the out of labor force is the second most persistent labor market state for women. Unemployment is the most mobile labor market state. Informal private wage work and self‐employed–agriculture are also relatively mobile labor market states. We next identify the effects of individual, household and job characteristics on different mobility patterns by estimating multinomial logit models. We find that gender, age, education, experience, and several sectors of economic activity are associated with the transition probabilities between the labor market states considered such as formal wage, informal wage, self‐employment, unemployment, government employment, and out of labor market. Education, in particular, university degree or above is noted to play a vital role in the probability of transitions across several labor market states.

Female employment in India: determinants of choice of sector of activity

Purpose The purpose of this paper is to examine whether the choice of employment sector for women is driven by the structure of the labour market or determined by the household socioeconomic condition. Design/methodology/approach Data for the study were drawn from the National Sample Survey 68th round (2011–2012). The sector of employment was assessed through females’ participation as an unpaid labour, employer/own account worker, informal wage worker, formal wage worker and unemployed. A multinomial logit model was used to examine the factors that determine the sector of employment. Findings Although education increases formal employment among women, most of them are unemployed or entering into informal employment. It indicates that the labour market has not been able to integrate educated women into formal employment. Research limitations/implications Increase in female education accompanied by a slow growth of employment creates the challenge to accommodate the educated and skilled women in formal employment. Originality/value This study examines the factors determining the sectoral participation of employment to assess the responses of the current labour market for the females, especially educated females who have not been adequately addressed. The findings of the study have significant implications for formulating appropriate labour market policies for the educated female labour force.

ОПОДАТКУВАННЯ ПРАЦІ В УКРАЇНІ: ҐЕНЕЗА ТА ПЕРСПЕКТИВИ РОЗВИТКУ

In Ukraine, over the years of independence, there have been certain changes in the taxation of labor, but today there are problems regarding the collection of taxes on labor that require an immediate solution. Therefore, it is important to study the genesis of labor taxation in Ukraine and determine the prospects for its development, taking into account international experience and identified shortcomings. The article considers the formation and development of tax on personal income and a single social contribution in Ukraine . Particular attention is paid to the European experience of such taxation. Certain patterns in the taxation of labor in the EU countries were identified, namely, the use of a non-taxable minimum income of citizens and a progressive scale of rates in the taxation of individual incomes, as well as the distribution of the burden of social contributions between employers and employees. All this significantly distinguishes labor taxation in the EU from current labor taxation in Ukraine. Based on the study, a proprietary model of labor taxation was proposed, which provides for the introduction of a non-taxable minimum income of individuals, a progressive scale of personal income tax rates and transfer of part of the burden of ERUs from employers to employees. It has been proven that the proposed model, when applied, will reduce the burden on employers while increasing the taxation of high-income employees, which will help level out incomes and increase working capital of enterprises, escape from the shadow of informal wages while increasing revenues to state trust funds.

Self-employment in developing countries: A search-equilibrium approach

This paper develops and estimates a life-cycle on-the-job search model with self-employment that captures labor market stylized facts typical of middle-income developing economies. Workers flow across unemployment, self-employment, formal and informal wage employment. Individuals differ across and within employment sectors in terms of earnings, self-employment ability and transition rates. Counterfactual analysis shows that a flat reduction in payroll taxation increases the share of formal sector workers mainly due to a drop in self-employment. A proportional reduction in payroll taxes improves total welfare by increasing formal sector wages and profits, and allowing for a better allocation of high education workers. Converting to a progressive payroll tax system, equivalent to a flat reduction, is ineffective in reducing informality and leads to a decline in total welfare.

Is there an informal employment wage penalty in Egypt? Evidence from quantile regression on panel data

This is the first study that uses panel data to assess the magnitude of the informal sector wage gap in Egypt. We consider the private sector male wage earners in Egypt and examine their wage distribution during 1998–2012 using the Egyptian Labor Market Panel Survey. We estimate Mincer wage equations both at the mean and at different quantiles of the wage distribution taking into account observable and unobservable characteristics with a fixed effect model. We also consider the possibility of nonlinearity in covariate effects and estimate a variant of matching models. We find a persistent informal wage penalty in the face of extensive sensitivity checks. It is smaller when unobserved heterogeneity is taken into account, and unlike many previous studies, there are very few differences across the conditional wage distribution. We also examine the informal wage penalty over time and in different subgroups according to age and education. The informal wage penalty has increased recently over time and is larger for the higher educated and the young.

Bureaucratic efficiency, economic reform and informal sector

In this paper, we develop a four sector general equilibrium model of a small open economy with three formal sectors and one informal sector. One formal sector’s output is used as an intermediate input in all other sectors. This intermediate input is defined here as bureaucracy. We have also incorporated an additional cost specific to the informal sector in addition to factor cost of production which is defined as the cost of corruption. In this context, this paper examines the impact of less protectionist policy and bureaucratic reform on the output levels and factor prices. It has been shown that the informal sector and manufacturing sector have contracted due to tariff reduction while informal wage goes up. Further, we have examined the effect of a decrease in bureaucratic (in)efficiency. This reduces the informal wage rate but informal sector expands. It is further examined that the effect of a decrease in the cost of corruption leads to an increase in the informal wage rate.

Enforcement of labor market regulations: heterogeneous compliance and adjustment across gender

This paper explores microdata from Argentine household surveys to analyze how changes in the enforcement of labor regulations affect the compliance level and other labor outcomes among men and women. Using information of the highly decentralized labor inspection system in Argentina, I construct an enforcement measure with variation at the province, sector, and time level (share of inspected firms) which I instrument using a measure of the arrival cost of labor inspectors to the firms. The main findings reveal that when enforcement increases, the compliance with mandated benefits and formal wages increase among men, while informal wages decline. Among women, the compliance level declines jointly with informal wages. These heterogenous impacts are explained by labor regulations that make formal and informal men more substitutable in the production process than formal and informal women.

Changing labour power on smallholder tea farms in Kenya

Informal wage workers on smallholder tea farms make important contributions to world export of tea. The literature on global production networks only recently began to pay more detailed attention to conceptualizing the role that labour plays in such networks and has so far focused mainly on industrial settings – not smallholder farming. Similarly, the literature on sustainability standards has focused on wage-workers in large-scale workplaces such as factories or plantations. This article seeks to remedy this lack of attention and make contributions to both literatures by arguing first, that labour agency in export-oriented smallholder tea production in developing countries may not be advanced much by the sustainability certifications demanded by Western buyers and second, that labour agency can nevertheless be present at ‘the margins’ of global production networks even though informal rural wage workers are most often assumed to lack both ‘structural’ and ‘associational’ power. These arguments are made on the basis of a case study of on-farm wage labour in smallholder tea production in Kenya. The article finds labour’s bargaining power to be stronger in some locations compared to others and that differences between locations can be fruitfully explored by looking not just at workers insertion into the vertical structures of the global production network but by also including more ‘horizontal’ dimensions relating to the local context in which smallholder tea production and on-farm wage-workers are embedded.

Reform, informal sector, and extortion

AbstractInformal economy involving unrecorded, unregistered, extra‐legal activities employs majority of the work force in the developing world. Such extra‐legal existence of informal production is facilitated through extortion by agents of political forces in power. Also, extortion activities themselves constitute an informal segment. Full‐scale general equilibrium consequences of such institutions are rarely discussed in the literature. We develop a well‐specified general equilibrium model to explore the possible consequences of reform. Economic reform may have an expansionary effect on the number of extortionists. Depending on capital mobility and factor intensity assumptions informal output and informal wage may increase.

Inflow of educational capital, trade liberalization, skill formation and informal sector

This paper talks about a small open economy comprising of three sectors: two formal sectors and one informal sector. One of these formal sectors uses a specific factor which is specially trained labor. “Special training” can easily encompass the issues such as vocational training, technical training, computer literacy, software knowledge etc. Unskilled workers have the option of being trained to get a job in high wage skilled sector or to be employed in the informal sector. In such situation, an inflow of educational capital leads to a change in informal wage while formal wage and rental will remain unchanged. Under reasonable condition informal wage may even go up. Though we have mixed effect in formal sector, informal sector must shrink. An extended version of the model with the incorporation of the effect of trade liberalization policy predicts just the opposite results with regard to informal output and formal wage.

Input trade reform and wage inequality

This paper, using a general equilibrium model of production and trade for a developing country with non-traded goods, dual unskilled labour markets and internationally fragmented skill-intensive production, illuminates how liberalised input trade affects the unskilled wages prevailing in the informal sectors and employment conditions in those sectors. Numerical analysis further highlights importance of the elasticities of factor substitution in production of different sectors to determine the movement in informal wage and therefore the movement in skilled–unskilled wage gap. These results are consistent with the empirical evidence on developing countries (like India) that suggests liberalisation-inequality relationship cannot be explained by focusing on tradable goods alone.

How Large are Earnings Penalties for Self-Employed and Informal Wage Workers?

This paper examines the earnings penalties and 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 across countries, 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. On average, employers and own-account professionals earn a premium compared to employees, although there are important differences across countries and between men and women. In terms of regional differences, earnings premiums for employers and professionals are largest for men in middle income Latin American countries. On the other hand, women employers and professionals do not earn a statistically significant premium compared to employees in any region of the world. 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.

Segmentation and Job Mobility in the Indian Labour Market

The extent of mobility of the workers among different segments of a labour market plays a crucial role in the overall levels of poverty and inequality in the economy. Theoretical conceptualizations of the degree of mobility in the labour market have broadly been polarized into a segmented vs. integrated labour market debate. Within the segmented model frame-work the informal economy is considered an unfavorable sector and the informal workers queuing for better jobs in the formal economy. This view is countered by the legalist school who view the choice to be informal to be voluntary. Due to the importance of labour mobility equitable growth and poverty reduction and its significance in understanding the nature of the labour market, the present study analysis the patterns and consequences of labour mobility in India using the novel IHDS panel data. Our study finds significant mobility across sectors in the economy. We also find certain individual attributes being associated with movement into certain labour market segments. Finally, our study finds evidence of significant earnings differentials across paid work statuses. The study finds evidence of segmentation with regard to regular (or formal) vis-a-vis casual (or informal) wage employment. We also notice large-scale distress driven movements of works, especially from OAW and cultivation work into casual work. In contrast we also notice a large number of small businesses which have seen growth over the period. Given the results of our study suitable policy recommendations have been made.

Labour protection and informal work: A cross‐national analysis of European countries, 2004–2012

AbstractInformal work, defined as work performed without a formal contract, lowers productivity, reduces tax revenue and hampers economic growth. Reducing informal work is a policy objective in developed and developing countries alike. Yet, particularly since the onset of the global financial crisis in 2008, most socio‐economic policy reforms across Europe have reduced the generosity of unemployment benefit schemes and deregulated employment protection. The authors argue that, while such reforms may have contributed to reducing unemployment, they might also have increased the incidence of informal work. Using European Social Survey data for 2004–12, they find that labour protection is effective in reducing informal wage employment.