The Persistence of Informality: Evidence from Panel Data

Alpaslan Akay () and Melanie Khamis ()
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Alpaslan Akay: University of Gothenburg

No 6163, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Informality is a growing phenomenon in the developing and transition country labor market context. In particular, it is noticeable that working in an informal employment relationship is often not temporary. The degree of persistence of informality in the labor market might be due to different sources: structural state dependence due to past informality experiences and spurious state dependence due to time-invariant unobserved individual effects, which can alter the propensity of being in the informal sector independently from actual informality experiences. The purpose of our paper is to study the dynamics of informality using a genuine panel data set in the Ukrainian labor market. By estimating a dynamic panel data probit model with endogenous initial conditions, we find a highly significant degree of persistence due to previous informality experiences. This result implies that policies attempting to reduce current levels of informality may have a long-lasting effect on the labor market.

Keywords: transition countries; unobserved heterogeneity; state dependence; informality (search for similar items in EconPapers)
JEL-codes: D60 I31 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2011-11
New Economics Papers: this item is included in nep-iue and nep-lab
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Citations: View citations in EconPapers (3)

Published - published in: Research in Labor Economics, 2012, 229 - 255

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