What drives the spatial wage premium in formal and informal labour markets? The case of Ecuador

Alessia Matano, Moisés Obaco () and Vicente Royuela
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Moisés Obaco: GIER (Reserach Group in Regional Economics), University of Cuenca, Ecuador and AQR-IREA, University of Barcelona, Barcelona, Spain.

No 201813, IREA Working Papers from University of Barcelona, Research Institute of Applied Economics

Abstract: This article investigates the incidence of agglomeration externalities in Ecuador, a small-sized, middle-income developing country. In particular, we analyze the role of the informal sector within these relations, since informal employment accounts for a significant part of total employment in the developing countries. Using individual level data and instrumental variable techniques, we investigate the impact of spatial externalities, in terms of population density, local specialization and urban size, on the wages of workers in Ecuadorian cities. The results show that spatial externalities matter also for a small developing country. Moreover, analysis of the interaction between spatial externalities and informality shows that, on average, workers employed in the informal sector do not enjoy significant benefits from agglomeration externalities. Finally, by investigating the possible channels behind spatial agglomeration gains we show that the advantages from agglomeration for formal sector workers may well be accounted for by better job-quality matches and, to a lesser extent, by learning externalities. For informal sector workers, our findings also suggest possible gains from job changes, which offset a penalty for remaining employed in the same occupation.

Keywords: Agglomeration Externalities; Developing Economies; Informal Employment; Workers’ Wages; Functional Urban Areas; Ecuador. JEL classification: J31; J46; R23; R12. (search for similar items in EconPapers)
Pages: 40 pages
Date: 2018-06, Revised 2018-06
New Economics Papers: this item is included in nep-geo, nep-iue, nep-lma and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: What drives the spatial wage premium in formal and informal labor markets? The case of Ecuador (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ira:wpaper:201813

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