Heterogeneity among Mexico’s Microenterprises: An Application of Factor and Cluster Analysis

Cunningham, Wendy; Maloney, William F.

doi:10.1086/340012

Cited by 146 publications

(105 citation statements)

References 19 publications

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“…However, quite in line with Cunningham and Maloney (2001), a number of recent studies from diverse settings including Sri Lanka, Ghana, Kenya, West-Africa and Mexico have found very high returns to capital at low levels of capital in small-scale activities, thus contradicting the assumption of low subsistence returns at low levels of capital (McKenzie and Woodruff, 2006;Udry and Anagol, 2006;De Mel, et al, 2008;Kremer, et al, 2008;Fafchamps, et al, 2011;Grimm, et al, 2011). In addition, there is mixed evidence on the existence of high entry barriers (McKenzie and Woodruff, 2006;Udry and Anagol, 2006;Grimm, et al, 2011).…”

Section: The Dynamics Of the Informal Sector: Theoretical Aspects Andsupporting

confidence: 57%

“…According to these theories, the informal sector thus comprises an upper tier, with modes of production and jobs similar to formal firms, and a lower tier, corresponding to the residual or subsistence sector in the dualistic view (Fields, 2004;Bosch and Maloney, 2010). However, Cunningham and Maloney (2001) show for Mexico that only a small fraction of firms actually corresponds to the dualistic view in which self-employment is the disadvantaged sector of a segmented market. Instead, their findings argue in favor of strong heterogeneity among small firms, of the same nature as in developed countries, where small firms that have reached their optimal long-run size co-exist with profitable starting firms and start-up firms that will not survive.…”

Section: The Dynamics Of the Informal Sector: Theoretical Aspects Andmentioning

confidence: 99%

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Informal sector dynamics in times of fragile growth: The case of Madagascar

Vaillant

Grimm²,

Lay³

et al. 2014

Eur J Dev Res

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This paper investigates the dynamics of the informal sector in Madagascar during a period of fragile growth. Overall, the behavior of informal firms in terms of earnings, employment and capital accumulation points to a degree of heterogeneity which goes beyond a simple dualistic model and even a more refined model that would distinguish between an upper entrepreneurial and a lower subsistence tier within the informal sector. However, in line with the dualistic model, the informal sector indeed fulfils a labor absorbing function in times of crisis. During the growth period we see capital accumulation in most of the sectors and lots of evidence that households expand their activities. However, this happens mainly through the creation of new firms instead of the expansion of existing ones, which is consistent with much higher returns at very low levels of capital. More rapid expansion can be observed in sectors that operate with lower capital intensity, which is also consistent with risk or credit constraints as major deterrents to expansion. While there is some indication that total factor productivity increased over time, returns to capital and labor where not higher at the end of the observation period than at the beginning. Returns are also rather low at high levels of capital. These findings point to a limited growth potential of the informal sector as a whole. The heterogeneity in capital returns hints at large inefficiencies in allocating capital across informal firms.Keywords: Informal sector, microenterprise, firm growth, capital returns, Madagascar. RésuméCet article examine la dynamique du secteur informel à Madagascar pendant une période de croissance fragile. Le comportement des firmes informelles en termes de revenus, d'emploi et d'accumulation du capital suggère un degré d'hétérogénéité allant au-delà du modèle dualiste classique, et même d'un modèle plus fin distinguant, au sein du secteur informel, un segment entrepreneurial et un segment de subsistance. Cependant, conformément au modèle dualiste, le secteur informel a absorbé le surplus de travail en temps de crise. Pendant la période de croissance, on constate une accumulation de capital dans la plupart des secteurs d'activité et une expansion des activités des ménages. Ceci se traduit pourtant principalement par la création de nouvelles firmes plutôt que par la croissance de firmes existantes, en lien avec des rendements beaucoup plus élevés à des faibles niveaux de capital. Une expansion plus rapide peut être observée dans les secteurs à faible intensité capitalistique, ce qui tend également à confirmer que le risque et les contraintes de crédit sont des obstacles à l'expansion. Alors que les résultats montrent que la productivité totale des facteurs a augmenté, les rendements du capital et du travail ne sont pas plus élevés à la fin de la période étudiée qu'au début. Les rendements sont également plutôt faibles à des niveaux élevés de capital. Ces résultats indiquent un potentiel de croissance globalement limité des firmes informelles....

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Section: The Dynamics Of the Informal Sector: Theoretical Aspects Andsupporting

confidence: 57%

Section: The Dynamics Of the Informal Sector: Theoretical Aspects Andmentioning

confidence: 99%

Informal sector dynamics in times of fragile growth: The case of Madagascar

Vaillant

Grimm²,

Lay³

et al. 2014

Eur J Dev Res

View full text Add to dashboard Cite

show abstract

“…They may also balance these bene…ts against the possibility to avoid taxes in the informal sector (Maloney, 1999). 3 Notwithstanding, several interesting studies show that the dual representation of the informal sector proves to be a better alternative than polar models (see in particular Cunningham and Maloney, 2001, and Guenther and Launov, 2006). estimation of the wage gap at the mean, which may su¤er from heteroscedasticity and fail to capture important information.…”

Section: Introductionmentioning

confidence: 99%

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

Bargain

Kwenda

2014

Economic Development and Cultural Change

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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. JEL Classification:J21, J23, J24, J31, C14, O17

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“…Voluntary choice regarding jobs and particular attributes of these jobs, such as flexible hours, working as a self-employed and being one's own boss as a micro-entrepreneur, and not valuing social security benefits, can be the reasons for remaining in or moving to the informal sector (Maloney 1999(Maloney , 2004Cunningham and 2 In this school of thought, formal sector jobs not only command higher wages but also provide fringe benefits that are absent with informal sector jobs (see also Mazumdar, 1976). Maloney 2001). Here, contrary to the segmentation case, formal and informal employment are not necessarily negatively correlated over the business cycle.…”

Section: Introductionmentioning

confidence: 99%

Informal Employment in Transition Countries: Empirical Evidence and Research Challenges

Lehmann

2015

Comp Econ Stud

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Even though informal employment is wide-spread in transition economies the literature on this phenomenon in the region is rather scarce. For policy makers it is important to know the incidence and the determinants of informal employment. In the first part of the paper we demonstrate that its incidence and to a lesser degree its determinants depend on the definition used. We then discuss studies that attempt to test for labor market segmentation in transition economies along the formalinformal divide. The presented results are inconclusive and we come to the conclusion that more work needs to be done before we can make definitive statements about whether labor markets are integrated or segmented in transition economies. Last but not least we introduce a new research area that links risk preferences and selection into labor market states. We show that if individuals have a choice, relatively risk loving workers have an increased likelihood to choose informal employment and self-employment.

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Heterogeneity among Mexico’s Microenterprises: An Application of Factor and Cluster Analysis

Cited by 146 publications

References 19 publications

Informal sector dynamics in times of fragile growth: The case of Madagascar

Informal sector dynamics in times of fragile growth: The case of Madagascar

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

Informal Employment in Transition Countries: Empirical Evidence and Research Challenges

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