Do Workers In Chile Choose Informal Employment? A Dynamic Analysis Of Sector Choice

Abstract

The degree to which a labor market is segmented and jobs in the formal sector of the economy are rationed is critical to the analysis of coverage of social insurance and pensions. In Chile, using unique panel data spanning the 1998-1999 contraction, I find little evidence that self-employment is the residual sector of a dualistic labor market, as is often depicted in the literature. Data on transitions between sectors show that selfemployment is not a free-entry sector, and that entrepreneurs can be "pushed" out of selfemployment just as others are pushed out of formal employment during economic downturns. However, employment without a contract does exhibit many of the features of the free-entry, employment safety net depicted in the dualistic literature. An annex to this paper, presents supportive evidence from static analysis of selection-corrected wage differentials, and a comment on the drawbacks of this approach. * The sections reviewing the literature on labor markets in developing countries, motivates the analysis of earnings differentials presented in the Appendix. The results presented in the Appendix, in turn complement the empirical sections of this paper. I would like to thank Geeta Kingdon and Abigail Barr for valuable discussions and guidance in the structuring of this paper.

Informal Workers across Europe: Evidence from 30 European Countries

“…This analysis sheds some light on the worker mobility between formal and informal sector, thus complementing country-specific studies (Packard, 2000;Bosch et al, 2007;Bosch and Maloney, 2010;Nikolovova et al, 2010; see also Le (1990, Section 4.1) for a survey of earlier studies). Section 3.3 compares household income of informal and formal employees.…”

Explaining individual- and country-level variations in unregistered employment using a multi-level model: evidence from 35 Eurasian countries

“…Firstly, a 'modernisation' thesis has argued that the informal economy becomes less prevalent with economic development and the modernisation of government which leads to a reduction in public sector corruption (Lewis 1959;Packard 2007). Applying this to the cross-national variations in unregistered employment, this perspective would thus view unregistered employment as more prevalent in less developed economies, measured in terms of GDP per capita, and societies in which there is a lack of modernisation of the state bureaucracy.…”

Explaining Cross-national Variations in the Size of the Shadow Economy in Central and Eastern Europe

“…Economies with relatively large shadow economies are thus viewed as "traditional", "under-developed" and "backward" whilst economies in which the modern formal economy is more dominant are delineated as "advanced" and "developed" (Boeke 1942;Geertz 1963;Gilbert 1998;Lewis 1959;Packard 2007). Applying this theory to explaining the cross-national variations in the size of the shadow economy, the argument is that in less developed and modern economies, the shadow economy will be larger.…”