Wage Difference Between Formal Sector and Informal Sector Jobs; With Special Reference to the Labour Market in Sri Lanka

Bharatha Prabath Parakrama Badullahewage and Shohani Upeksha Badullahewage
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Bharatha Prabath Parakrama Badullahewage: Department of Statistics, Faculty of Sciences, University of Colombo, Sri Lanka
Shohani Upeksha Badullahewage: Department of Economics, Faculty of Humanities and Social Sciences, University of Sri Jayewardenepura, Sri Lanka

International Journal of Innovation and Economic Development, 2021, vol. 7, issue 3, 7-17

Abstract: It is globally understood that wage-based employment structure and wages are a central aspects of the labour force at work. The informal sector is ranging to a broader concept that is difficult to define. The formal–informal wage gap is crucial to understand labour market informality, especially in developing countries with the large informal sectors. The basic model is taken from Mincer (1974), and the study is primarily based on secondary data. The new dummy variable of Job_type and an interactive term were incorporated into the Mincer earning function to analyse wage differences between formal sector and informal sector jobs. The study concludes that there is a wage gap between the a formal and informal sector. Moreover, if a person engages in formal sector job with good education qualification and good working experience, he will be entitled for a higher wage rate. Policies that promote education and equal opportunities for workers in both formal and informal sectors would improve earnings for many workers by increasing productivity and incomes.

Keywords: Difference; Formal; Informal; Jobs; Wage. (search for similar items in EconPapers)
JEL-codes: M00 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:mgs:ijoied:v:7:y:2021:i:3:p:7-17

DOI: 10.18775/ijied.1849-7551-7020.2015.73.2001

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