Unpacking the Persistence of Informality

Benjamin Villena-Roldan ()

Journal of Labor Research, 2024, vol. 45, issue 2, No 3, 203-231

Abstract: Abstract In emerging economies, policymakers should care not only about the informality level but also about its persistence, which also has key welfare implications. Considering worker flows that drive people into informality is important for developing effective public policies. Using a Markov representation of worker flows and correcting for time aggregation, I find low persistence of informality in Chile, implying an average duration of nearly 3.5 months, and estimate the contributions of labor market transitions among formality, informality, unemployment, and inactivity. The flow into informality from unemployment is the main force accounting for persistence, which suggests that informality is a temporary shelter from joblessness. I also find informality persistence is higher for females, young workers, and tertiary-educated individuals.

Keywords: Informality; Unemployment; Transition rates; Time-aggregation bias (search for similar items in EconPapers)
JEL-codes: E24 J46 J64 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s12122-024-09359-8

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