The informal sector wage gap: new evidence using quantile estimations on panel data

Olivier Bargain and Prudence Kwenda

No 200905, Working Papers from School of Economics, University College Dublin

Abstract: This paper provides new evidence on the wage gap between informal and formal salary workers in South Africa, Brazil and Mexico. We use rich datasets that allow us to de?fine informality in a relatively comparable fashion across countries. We compute precise wage differentials by accounting for taxes paid in the formal sector. For each country, we analyze how the sectoral wage gap varies within groups, between groups and over time. To account for unobserved heterogeneity, we use large (unbalanced) panels to estimate ?fixed effects models at the mean and at different points of the wage distribution. We fi?nd that unobserved heterogeneity explains a large part of the (conditional) wage gap. The remaining informal sector wage penalty is large in the lower part of the distribution but almost disappears at the top. The penalty primarily concerns young workers and is found to be procyclical. We carefully investigate the robustness of these results and discuss their policy implications as well as regularities across countries.

Keywords: Wage gap; Informal sector; Quantile regression,; Fi?xed effects model; Selection; Wage differentials; Informal sector (Economics); Regression analysis (search for similar items in EconPapers)
JEL-codes: C14 J21 J23 J24 J31 O17 (search for similar items in EconPapers)
Date: 2009-05
New Economics Papers: this item is included in nep-dev and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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http://hdl.handle.net/10197/2601 First version, 2009 (application/pdf)

Related works:
Working Paper: The Informal Sector Wage Gap: New Evidence Using Quantile Estimations on Panel Data (2014)
Working Paper: The Informal Sector Wage Gap: New Evidence using Quantile Estimations on Panel Data (2013)
Working Paper: The Informal Sector Wage Gap: New Evidence using Quantile Estimations on Panel Data (2013)
Working Paper: The Informal Sector Wage Gap: New Evidence Using Quantile Estimations on Panel Data (2009)
Working Paper: The Informal Sector Wage Gap: New Evidence Using Quantile Estimations on Panel Data (2009)
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