The Informal Sector Wage Gap: New Evidence Using Quantile Estimations on Panel Data

Olivier Bargain and Prudence Kwenda ()
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Prudence Kwenda: University College Dublin

No 4286, IZA Discussion Papers from Institute for the Study of Labor (IZA)

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 define 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 sector 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 quantiles of the wage distribution. We find 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; fixed effects model; selection (search for similar items in EconPapers)
JEL-codes: J21 J23 J24 J31 C14 O17 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab
Date: 2009-07
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Related works:
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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