The effect of unobservables on labour supply decisions: the formal and informal sector during transition

Ceema Zahra Namazie

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The transition from a command economy in the FSU resulted in increased activities in the informal sector. However despite prevalent delays in wage payments many workers were still observed to be working full-time in the formal sector. Here a model of workers' labour supply decisions incorporates unobservable features of informal activities in both sectors; namely unofficial payments within the formal sector and stigma associated with the informal sector. These extensions result in non-trivial changes to workers' reservation wage conditions and reconcile the unexpected outcomes of workers' labour supply decisions. A limited empirical analysis of Kyrgyz data, for 1993 and 1996, provides support for the implications of this framework.

Keywords: transition; informal activities; labour supply decisions (search for similar items in EconPapers)
JEL-codes: J22 P23 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2003-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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