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

Olivier Bargain and Prudence Kwenda

Economic Development and Cultural Change, 2014, vol. 63, issue 1, 117 - 153

Abstract: We estimate the informal-formal sector pay gap throughout the conditional wage distribution using panel data from Brazil, Mexico, and South Africa. We control for time-invariant unobservables, and identification stems from intersector movers. We control for observables in a nonlinear way using propensity score reweighting and carefully check for potential measurement errors. Using similar definitions of informality, we obtain consistent results for all three countries: informally employed workers earn much less than formal workers primarily because of lower observable and unobservable skills. Estimates of the conditional wage gap show that they are also underpaid compared to their formal sector counterparts. In all three countries, the informal wage penalty is larger in the lower part of the conditional distribution and tends to disappear at the top (i.e., the informal sector increases wage dispersion). The magnitudes of these effects vary across countries, with the largest penalties in lower conditional quantiles of South Africa and more modest wage gaps in Latin America. We suggest explanations in line with different legal and labor market conditions.

Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

Downloads: (external link)
http://dx.doi.org/10.1086/677908 (application/pdf)
http://dx.doi.org/10.1086/677908 (text/html)
Access to the online full text or PDF requires a subscription.

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)
Working Paper: The informal sector wage gap: new evidence using quantile estimations on panel data (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucp:ecdecc:doi:10.1086/677908

Access Statistics for this article

More articles in Economic Development and Cultural Change from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().