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Informal Employment and the Role of Regional Governance

Erik Jonasson ()

No 2009:10, Working Papers from Lund University, Department of Economics

Abstract: The aim of this paper is to provide an explanation to why the degree of informal employment may vary substantially between different regions within a country. In Brazil, 45% of workers in the urban labor force are employed informally. The degree of informal employment, however, varies substantially across regions, with some cities having 20% and others having 80% or more of their labor force in the informal sector.The hypothesis assessed here is that the quality of local governance—or government effectiveness—affects the decisions of workers and businesses as to whether to participate in the formal or the informal sector. The empirical analysis, based on data from 5500 Brazilian municipalities, shows that informal employment is lower in regions with better governance, higher average education, and with a relatively large manufacturing sector. Endogeneity concerns are addressed as part of a series of robustness checks of the results.

Keywords: informal employment; government effectiveness; Brazil; Latin America (search for similar items in EconPapers)
JEL-codes: J21 J24 O17 R23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev, nep-lab and nep-ure
Date: 2009-04-26, Revised 2010-09-27
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Published as Jonasson, Erik, 'Informal Employment and the Role of Regional Governance' in Review of Development Economics, 2011, pages 429-441.

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