The Remains of Informality in the Formal Sector: Social Networks and Wages in Senegal's Labor Market

Nicoletta Berardi

No 09-129, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We develop a theoretical framework that considers the role played by moral hazard and the diversity of networks and cultures in the choice of hiring channel. Our model explains why either informal or formal hiring channels are preferred and either positive or negative wage differentials emerge for workers hired through informal channels, depending on circumstances. We show that, conditional on being employed, in favoritism contexts social networks are likely to be adopted as hiring channels for unskilled jobs and to result in wage penalties and the more so the stronger the ties, while otherwise the opposite happens. We then estimate an endogenous switching model for the case of Senegal's manufacturing formal sector and we find, consistently with our theoretical predictions in case of favoritism, that informal hiring channels are preferred to full unskilled vacancies and are associated with a wage penalty. Moreover, the probability of having been hired through a social network and the absolute value of wage penalties are increasing with the strength of ties.

Keywords: social networks; hiring channel; wage differential (search for similar items in EconPapers)
JEL-codes: J31 O12 (search for similar items in EconPapers)
Date: 2009-12
New Economics Papers: this item is included in nep-lab and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Social networks and wages in Senegal’s labor market (2013)
Working Paper: Social networks and wages in Senegal’s formal sector (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:22252

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