Pakistan's informal sector

This study reviews the main features of Pakistan's informal sector. The data on the informal sector, compiled from censuses and sample surveys in one major city (Rawalpindi), suggest that both real wages and employment have grown in the informal sector. The seeming paradox of real wage growth in a labor surplus economy is explained by real wage growth in both agriculture and large‐scale manufacturing, both of which were made possible by Pakistan's growth performance during the 1960s. The differences in wages between the formal and informal sector, after adjusting for age and education, are quite small, a reflection of high labor mobility between the two sectors.     

Who Suffers the Penalty?: A Panel Data Analysis of Earnings Gaps in Vietnam

In spite of its predominant economic weight in developing countries, little is known about the informal sector earnings structure compared to that of the formal sector. Taking advantage of the rich VHLSS dataset in Vietnam, in particular its three wave panel data (2002, 2004, 2006), we assess the magnitude of various formal–informal earnings gaps while addressing heterogeneity at three different levels: the worker, the job (wage employment vs. self-employment) and the earnings distribution. We estimate fixed effects and quantile regressions to control for unobserved individual characteristics. Our results suggest that the informal sector earnings gap highly depends on the workers’ job status and on their relative position in the earnings distribution. Penalties may in some cases turn into premiums. By comparing our results with studies in other developing countries, we draw conclusions highlighting Vietnam’s labour market specificity.     

Maquiladoras and market mamas: Women's work and childcare in Guatemala City and Accra

Abstract

This paper analyses work, childcare, and earnings of mothers in the slums of Guatemala City and Accra. Similar factors affect decisions to work and to use formal daycare, but the importance of childcare varies with the role of the formal labour sector. In Guatemala, where formal sector work is important, higher prices for informal care increase formal daycare use. However, daycare prices and proximity to daycare centers do not significantly affect earnings in Guatemala City and Accra, respectively. Providing formal daycare may be more important to mothers' decision to work in cities where formal sector work dominates.     

Changes in earnings inequality and labour market segmentation: Metropolitan Santiago 1969–78

Changes in earnings inequality are examined in this article through an eclectic approach allowing for differences in human capital earnings function by labour market segments. Several findings are of interest. The first are the components of earnings inequality changes, these being, in order of importance: changes in the within segments inequality, changes in the relative share of the informal sector segment, and changes in relative income between segments. Second, these changes are found to be the result of labour market liberalisation policies such as abolition of both minimum wages and labour turnover legislation in the formal sector, the promotion of self‐employed activities in the informal sector, and, the selective mobility pattern between segments.     

Structural reform,institutions and earnings: Evidence from the formal and informal sectors in urban Peru

Reforms undertaken in Peru in the early 1990s might have resulted in a slight reduction of the informal sector. Costs associated with becoming and staying informal, and benefits of becoming formal might have increased. This, when a legalistic definition of informality is used. Earnings differentials between formal and informal self‐employed workers are negligible although they persist between formal and informal salaried workers. Skilled workers are more likely to be found in the formal sector and informal wage earners tend to be younger and less skilled. The earnings generating process for both the formal and the informal self‐employed workers is similar.     

Performance and Equality in Public Sector Wages

Abstract

The present paper describes how democratic values—reflected by work equality values—paired with the organizational performance characteristics—defined by the height of organizational inputs and outputs—affect gender differences in wages. It is suggested here that despite the democratic conception of the public sector's equal employment opportunities, variations in the organizational performance of 83 local authorities account for gender differences in wages. The study assumes that organizational inputs (type and level of resources) and outputs (type and level of provided services) generate gender differences in individual earnings, when controlling for human capital factors. The results show that variations in organizational performance affect women's but not men's wages. However, the effect of individual level (demographic, human capital and employment) characteristics, reflecting the meritocracy‐based and democratic nature of public sector employment rather than the level of organizational performance explains most of the variance in gender differences in wages. These results point to the slow shift from the principle of administrative values of democracy and equality to the adoption of performance‐related mechanisms in the determination of public sector wages.     

Wage determination in Brazil: The growth of union bargaining power and informal employment

This article examines wage determination in Brazilian manufacturing during the 1980s and early 1990s. It presents evidence to show that the reduction in state regulation of collective bargaining has led to the development of a system of wage determination which is increasingly characterised by rent sharing and insider trade union bargaining power. Real wages appear increasingly inflexible with respect to movements in open unemployment, with a large informal sector disciplining formal sector wage bargaining and cushioning the impact of broader labour market conditions. An important consequence of this is that the employment costs of a successful counter‐inflationary strategy may be very severe.     

Agricultural Workers,Credit Rationing and Family Networks in Rural Mexico

Abstract

We use mixed methods and first-hand household data in Mexico to investigate credit practices by households engaged in agricultural wage employment. Quantitative analysis shows evidence of rationing in the formal sector but also suggests the existence of mitigating mechanisms. Qualitative analysis provides additional insights. First, income patterns associated with agricultural wage generate income smoothing needs that are sometimes better met by the informal sector. Second, family networks can perform key functions as gateways to the formal sector, through specific informal arrangements that inject flexibility into formal rules and procedures.     

Small-Business Participation in the Informal Sector of an Emerging Economy

We investigate the characteristics of the owners of small businesses that participate in the informal sector of an emerging economy and their perception of the risk of detection by tax authorities while doing so. Data are gathered from a survey covering 1027 small businesses in Trinidad and Tobago. Results suggest that small business owners are motivated to participate in the informal sector when they believe that the risk of detection by the tax authorities is low and that government regulations are burdensome, but there is no evidence that the tax rate itself is an issue. Their perception of the risk of detection by the tax authority is determined largely by the time they spend and the income they earn in the formal sector.     

Women’s work and development in Latin America

The discussion explores the problem of women's employment patterns under capitalist development in Latin America, first by analyzing the way in which women's work has been conceptualized within modernization theory. It then goes on to examine the 2 types of work in which most Latin American women are engaged -- domestic service and informal work such as selling produce and taking in laundry -- to provide evidence for challenging modernization theory and for developing a more useful approach. Subsequently, the discussion considers women's domestic and informal work within the context of capitalist development, which provides some insight into the broader structures shaping women's employment. Finally, the discussion proposes some reconceptualizations of women's work and development. Modernization theorists analyze women's work in the cities within a variety of constructs, interpreting it as a backward manifestation of traditional society, a reflection of women's inadequate training for the modern sector, an indication of women's primary orientation to the family, or as a phenomenon that is too tangential to warrant examination. The primary assumption is that modernization improves women's status and the conditions of their lives as it brings greater productivity, more advanced technology, and more highly differentiated institutions. Assumptions concerning women's absorption into the modern sector and the equalization of work roles between men and women are not borne out by actual employment trends, which reveal the persistent concentration of women in domestic work, informal jobs, and the lower-paying service jobs. Despite their predominance, domestic service and informal jobs are infrequently included in employment statistics and are virtually ignored in studies of development, yet these 2 types of work are the primary forms of work for Latin American women. Even when modernization theorists recognize the proliferation of informal and domestic service jobs, they see it as part of a progressive development stage, with displaced rural laborers becoming incorporated into the modern sector by way of informal jobs. In most Latin American countries, rural women become a permanent part of the services and the informal labor market when they move to the cities. There is little sign of their transition to industrial employment. In general, capitalist development marginalizes Latin American women, who in several important ways lose status. The range of pursuits considered women's work should include their activities within the infromal labor sector. Informal work is still virtually unexplored, especially as it relates to wage work in underdeveloped countries. Informal labor is not registered in the census, nor is it included in the gross national product. Yet, it is a major component of women's work. Domestic service and infromal jobs should be seen in relation to other forms of labor and to total social production.     

The Russian virtual economy turning real: Institutional change in the Arkhangel'sk forest sector

The article reports on an attempt to assess recent developments of the Russian ‘virtual economy’, a system that, some have argued, represents an alternative form of economic interaction to the modern market economy. In the virtual economy enterprises are engaged in informal non-market transactions with other enterprises and the public sector in accordance with rules that are alien to a market economy. Structural and behavioural changes that have taken place in the Russian economy after 1998 are studied with the help of official data and two surveys (from 1998 and 2005) of 15 forest sector enterprises in Arkhangel'sk Oblast’, a region in Russia's north-west with a largely forest-based economy. The outcome of the assessment indicates that the virtual economy is contracting in the Arkhangel'sk forest sector as well as in Russia at large, and that it will eventually disappear altogether, even if it is likely to exert a profound influence on the behaviour of Russian enterprises for some time yet.     

Employment Effects of FDI in Mexico's Non-Maquiladora Manufacturing

This paper analyses whether foreign direct investment (FDI) has contributed to employment generation in Mexico's non-maquiladora manufacturing sector. Drawing on highly disaggregated FDI and employment data, we estimate dynamic labour demand functions for blue and white collar workers, including FDI as well as its interaction with major industry characteristics. FDI has a significantly positive, though quantitatively modest impact on manufacturing employment in Mexico. This applies to both white collar and blue collar employment. The employment enhancing effects of FDI are larger in export oriented industries. In more capital-intensive industries, the employment effect of FDI remains positive for blue collar workers but not white collar ones.     

Reinventing urban government in the Netherlands: an American perspective

National agricultural policies intended to stabilize farm price and income may have different impacts on different agricultural sector of a state or a region. A policy which influences a region's agriculture also may affect the general economy of that region, depending on the degree to which agriculture is linked to the general economy. This study evaluates the economywide impact of the Flexible Planting Program (FPP) -- a recent policy designed to encourage farmers to respond more to market than to the government incentives. The study employs an integrated modeling framework which links the national and state farm sectors to the region's non-farm sectors. Because of reductions in real U.S. market prices and, in turn, Tennessee market prices of some farm commodities under FPP, production of most agricultural outputs are expected to decline in Tennessee by 1995. Study results indicate that as a result of price reductions, the agricultural sector will lose about 15 percent of output, income, and employment. These losses cause significant negative impacts on the business-related service sector. The service sector suffers a loss of 31 million dollars in total output and 523 jobs. The total income lost by the service sector (18 million dollars) will be much higher than agriculture sector (11.99 million dollars). Thus, though the FPP may deliver its intended good at the national level, the policy has the potential to cause undesirable impacts on certain regions.     

Formal and Informal Social Participation of Public,Non-Profit,and Private Employees

Although existing research has focused on the link between employee sector and formal volunteering, no differentiation is made between formal and informal social participation. This study compares the formal and informal social participation of public-, non-profit-, and private-sector employees using recent data from two sources. The results indicate that both government and non-profit employees report higher levels of formal and informal social participation, as measured in several ways. Findings provide a more complete understanding of the multifaceted ways in which citizens can get involved, and emphasize the importance of motivational differences.     

The Unintended Consequences of Structural Change: When Formal and Informal Institutions Collide in Efforts to Address Wicked Problems

Significant restructuring of bureaucracies has occurred to facilitate joined-up working. This article draws on new institutionalism to explore the rationale behind the use of structural change for the promotion of joined-up working. It argues that a strong institutionalized myth has emerged which has created isomorphic pressures in the public sector to instigate structural changes in the name of vertical integration. These combine with informal institutions in ways that can be both productive and unproductive, highlighting the need to find a balance between formal institutional change and informal institutionalized practices, which often go unacknowledged as a powerful influence on policy.     

Shedding Light on the Shadow Economy: A Nighttime Light Approach

Measuring the shadow economy is inherently difficult, but critical for understanding economic development. Using census data on formal and informal sectors in Cambodia, we document that 96.6 per cent of non-farm establishments do not formally register with the government, and their sales accounted for 76.6 per cent of total sales in 2011. Estimating their past sales from changes in nighttime light for 1993–2010, we find that both formal and informal firms increased their estimated sales. The share of informal sales increased from 68.8 per cent in 1993 to 76.6 per cent in 2011, suggesting that the informal sector increased quantitatively in both absolute and relative terms over time.     

Informal Employment in Developing Economies: Multiple Heterogeneity

This paper contributes to the literature on the nature of informal employment in developing economies. Drawing on the model with essential heterogeneity, it offers a list of scenarios describing the behavioural patterns which informal workers follow. The list nests not only classical patterns of a rationed formal sector versus an integrated labour market, but also different patterns of rationing. Using non-parametric techniques and data from a few African economies with different levels of development, the paper proposes empirical case studies fitting various informality schemes. Developing economies show disparate patterns of allocation of workers and various patterns of rationing.     

Labour market segmentation in Cameroonian manufacturing

The economic crisis in Cameroon has provided a test for distinct causes of labour market segmentation. Many firms that previously followed rigid legislation have ceased to do so, while a traditional informal sector has continued outside almost all regulation. We categorise workers as informal, formal, or regulated, by firm characteristics, and test for labour market segmentation between these sectors. Direct legislation is the most significant cause of segmentation. We find limited evidence that the costs of becoming formal create rationing in formal‐sector jobs. While addressing both sets of rigidities would have maximum impact on unemployment in Cameroon, reforming direct labour legislation is likely to have the most beneficial short‐term impact.     

Active Labour Market Programmes in Latin America and the Caribbean: Evidence from a Meta-Analysis

We present a systematic review and meta-analysis of impact evaluations of active labour market programmes (ALMPs) in Latin America and the Caribbean (LAC). We extract 296 impact estimates from 51 programme evaluations to analyse the effects of participation on employment, earnings, hours worked, and formality. Our analysis finds that the probabilities of being employed and in formal employment are the labour market indicators most likely to be positively affected by ALMPs in LAC. Moreover, ALMPs are more successful among women and youth and when they are implemented during periods of economic expansion. Training programmes increase both formal employment and earnings; training is particularly effective when it is more intensive and when explicitly targeting poor individuals.     

The Invisibility of Wage Employment in Statistics on the Informal Economy in Africa: Causes and Consequences

Abstract

This article challenges the claim, along with the statistics that support it, that self-employment is by far the dominant employment status in the informal economy. The article begins by reviewing key insights from relevant literature on the informal economy to argue that conventional notions of ‘wage employment’ and ‘self-employment’, while unfit for capturing the nature and variety of employment relations in developing countries, remain central to the design of surveys on the workforce therein. After putting statistics on Tanzania’s informal economy and labour force into context, the analysis reviews the type of wage employment relationships that can be found in one instance of the informal economy in urban Tanzania. The categories and terms used by workers to describe their employment situation are then contrasted with those used by the latest labour force survey in Tanzania. The article scrutinises how key employment categories have been translated from English into Swahili, how the translation biases respondents’ answers towards the term ‘self-employment’, and how this, in turn, leads to the statistical invisibility of wage labour in the informal economy. The article also looks at the consequences of this ‘statistical tragedy’ and at the dangers of conflating varied forms of employment, including wage labour, that differ markedly in their modes of operation and growth potential. Attention is also paid to the trade-offs faced by policy-makers in designing better labour force surveys.