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

Olivier Bargain and Prudence Kwenda
Additional contact information
Prudence Kwenda: University College Dublin

No 200916, Working Papers from Geary Institute, University College Dublin

Abstract: This paper provides new evidence on the wage gap between informal and formal salary workers in South Africa, Brazil and Mexico. We use rich datasets that allow us to define informality in a relatively comparable fashion across countries. We compute precise wage differentials by accounting for taxes paid in the formal sector. For each country, we analyze how the sector wage gap varies within groups, between groups and over time. To account for unobserved heterogeneity, we use large (unbalanced) panels to estimate fixed effects models at the mean and at different quantiles of the wage distribution. We find that unobserved heterogeneity explains a large part of the (conditional) wage gap. The remaining informal sector wage penalty is large in the lower part of the distribution but almost disappears at the top. The penalty primarily concerns young workers and is found to be procyclical. We carefully investigate the robustness of these results and discuss their policy implications as well as regularities across countries.

Keywords: wage gap; informal sector; quantile regression; fixed effects model; selection (search for similar items in EconPapers)
JEL-codes: C14 J21 J23 J24 J31 O17 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2009-06-10
New Economics Papers: this item is included in nep-lab and nep-ltv
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Citations: View citations in EconPapers (28)

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http://www.ucd.ie/geary/static/publications/workingpapers/gearywp200916.pdf First version, 2009 (application/pdf)

Related works:
Journal Article: 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 (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)
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Persistent link: https://EconPapers.repec.org/RePEc:ucd:wpaper:200916

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