The Economics of Informality Conference 2018
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The conference will be the first organized by the “Network on Informality Studies” at Universidad del Rosario.
The school of Economics at Universidad del Rosario (Bogota, Colombia) is pleased to invite you to The Economics of Informality Conference 2018. This Conference aims to bring together scholars, experts, young researchers, practitioners and policy makers to present their work and exchange knowledge and debate the issues about informal economy.
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- ÍtemAcceso AbiertoFinancial disincentives for formal work in Ecuador and Colombia(2018-03-28) Rodríguez, David; Jara, Xavier; The Economics of Informality Conference 2018High and persistent labour informality has been a major problem for Latin American economies where most workers are excluded from social protectionandhave low and variable incomes.In the case of Ecuador and Colombia, despite recent formalisationpolicies, there is still a long way aheadto reduce informality which affects near half of the workforce.This paper seeks to quantifythe role of tax and benefit systems on financial incentives to enter formal work.In order to do so, weassess the formalisationcosts for Ecuadorian and Colombian informal workers using multi-country tax-benefit microsimulation techniques. In particular, we make use of representative microdata and simulate transitions from the informal into the formal sector to calculate the proportion of earnings that will be taxed away in the form of increased taxes andsocial insurance contributionsor reduced cash transfers, when a worker enters formality. We test the sensitivity of our results to different assumptions about the wage level individualswouldface when entering the formal sectorwith several imputation strategies.Our findingsshow that financial costs of formalisation are almost equaltopossible labour income gainsafter a transition to the formal sector. In other words, despite counterfactual formal income is in most of the cases higher than in the informal sector,the design of the tax system, and particularly, of social insurance contributions, erase mostpotential monetary gains of such a transition. This is espe-ciallytrue for self-employment workers.Furthermore, assuming workers self-select into the sector offering a comparative advantage we find even higher formalisations costs.Lastly, taking into account compliance with minimum wage legislation labour income gainsare muchhigher than using only counterfactual estimates, however,formalisation costs do not decrease substantially.
- ÍtemAcceso AbiertoFormal Employment is a Consequence of Skill Diversity in Cities(2018-05-28) Chaparro, Juan Camilo; O'Clery, Neave; The Economics of Informality Conference 2018Why do cities with larger populations in developing countries create relatively more formal employment? We build a model where skill diversity increases with working age population size, and urban agglomeration economies result from complementarities at the firm level between workers with diverse skills. Inactive, unemployed,or self-employed (informal) workers are gradually absorbed by firms as new sectors appear via an evolutionary process ofskill recombination by firms.The model makes four predictions: (1) faster firm entry in less complex sectors, (2) higher wages in more complex sectors, (3) relatively more formal employment in larger cities, and (4) faster formal employment growth in cities that have more of the skills needed in more complex sectors. Since skills are not observable, sector complexity is computed from sector diversity and ubiquity, and skill availability from inter-industry labor transitions. We find strong empirical support for all of the predictions when tested with social security data for Colombia for the period 2008-2015.
- ÍtemAcceso AbiertoInformality and segmentation : evidence from a self-selection model with entry barriers to formal employment in Peru(2018-05-28) Alvarado Enciso, Alfredo M.; The Economics of Informality Conference 2018The academic debate about informality has discussed whether this implies a segmented labor market, a competitive one or a mixed of both. Recent research has employed various empirical models in order to validate those hypothesis.However, it has not been possible to correct several deficiencies such as the use of earning equation, exogenous specification of labor segments and endogeneity by self selection. The present paper correct this constrains by using a self selectionmodel with entry barriers to formalemployment. It is concluded that there is indeed a multi-segmented labor market and that about a third of informal workers are involuntary
- ÍtemAcceso AbiertoMinimum Wage, Informality and Economic Development(2018-05-28) Kim, Jin Ho; The Economics of Informality Conference 2018n this paper we study the impact of minimum wage increase on the employmentstatus. Toward that goal, we rst empirically show that informal sector economy shows hetero-geneity though, on average, its characteristics support dual perspective (La Porta and Shleifer2008, 2014), and that formal sector economy shows monopsonistic competition over laborers. Theinformation on the features of informal and formal sector economy, provides a theoretical supportfor the empirical nding: minimum wage hike (i) increase formal sector employment, (ii) increasethe average productivity of the employer by forcing out small rms with less productivity out ofbusiness, and (iii) increase in intensive form of informality. Building on the empirical ndings,we extend Burdett-Mortensen equilibrium wage-posting model with heterogeneity in individualability. The central feature of the model is to allow heterogeneous aspect of informality by indi-vidual ability and also incorporate extensive and intensive margins of informality that previousresearch developed (Ulyssea (2017)). By putting together these dierent aspect of informality andthe presence of monopsonistic behavior of formal sector economy, we oer theoretical mechanismthat oers an insight on individuals' response on minimum wage hike. The central feature of themodel is the presence of spillover eects of minimum wage on both higher and lower earning ranksdue to monopsonistic competition among rms for workers and also due to incomplete compliance.Overall our theoretical model suggests that increase in minimum wage, in the long-run, leads to thechange of characteristics of informal sector economic activity, from external informality to informalinformality, and average ability of remaining self-employed decreases and average productivity ofentrepreneurs increase.
- ÍtemAcceso AbiertoSolving the Puzzle between the Minimum Wage and (In) formal Employment: An Analysis for a Developing Economy(2018-05-28) Arango, Salomé; García, Gustavo A.; Posso, Christian; The Economics of Informality Conference 2018This paper examines the effects of the minimum wage on employment, as well as other labor market outputs such as (in)formality, inactivity and hours of work. We use a data panel from 2009 to 2016 from the main regions of Colombiaand exploitthe exogenous variation of the minimum wage to isolate the effects of the simultaneous determination of employment and wages. The results show that the minimum wage negatively affectsboth formal and informal employment, which implies a decrease in the employment rate.