Earnings Premiums and Penalties for Self-Employment and Informal Employees around the World

Thomas (Tim) Gindling, Nadwa Mossaad () and David Newhouse
Additional contact information
Nadwa Mossaad: University of Maryland, Baltimore County

No 9723, IZA Discussion Papers from Institute of Labor Economics (IZA)

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 nonprofessional own-account workers and the majority of the rest are informal employees. Fewer than 10% are formal employees, and only 2% of workers in low income countries are employers or own-account professionals. As per capita GDP 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 to 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 GDP 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.

Keywords: self-employment; informal sector; earnings differentials; development (search for similar items in EconPapers)
JEL-codes: J31 J46 O17 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2016-02
New Economics Papers: this item is included in nep-iue, nep-lma and nep-ltv
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Citations: View citations in EconPapers (11)

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Working Paper: Earnings premiums and penalties for self-employment and informal employees around the world (2016)
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