The informal sector wage gap: new evidence using quantile estimations on panel data

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 4286

Classification and Topics

• Classification: Wirtschaft ; Labor Force and Employment, Size, and Structure ; Labor Demand ; Human Capital; Skills; Occupational Choice; Labor Productivity ; Wage Level and Structure; Wage Differentials ; Semiparametric and Nonparametric Methods: General ; Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
• Subject: Wage gap ; informal sector ; quantile regression ; fixed effects model ; selection ; Arbeitsmarkt ; Informeller Sektor ; Lohndifferenzierung ; Messung ; Brasilien ; Mexiko ; Südafrika

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bargain, Olivier ; Kwenda, Prudence
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/36205
• URN: urn:nbn:de:101:1-2009082181
• Last update: 10.03.2025, 11:44 AM CET