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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A Bonanza for Bad Politicians: Informal Gold Mining and Criminal Candidates in Peru(2018-05-29) Bandiera, Antonella; The Economics of Informality Conference 2018How do natural resource windfalls affect the quality of politicalcandidates? Existing scholarship argues that non-tax public revenuehas a negative effect on the characteristics of candidates because itimpairs the capacity of voters to hold leaders accountable. This liter-ature, however, has not considered other non-tax sources of revenue,namely, the rents derived from the informal and illegal exploitation ofnatural resources. In this paper, I analyze the effects of an increaseof informal gold production in Peru. I find that in districts that havehigher levels of informal gold mining, increases in prices worsens thequality of politicians. In particular, I use novel data on the crimi-nal records of candidates to show that a spike in the price of goldattracts more criminal candidates to politics and leads elected politi-cians to be accused of committing a crime more often. Interestingly,I also find that candidates who have a criminal record are less likelyto be elected. These results suggest that information on the trajec-tories of politicians is key to improve the quality of candidates that will be elected, and that the enforcement of natural resource regula-tion is crucial to eliminate the influence of rents on the behavior ofpoliticians. - ÍtemAcceso AbiertoConstrained occupational choice(2018-05-29) Margolis, David; The Economics of Informality Conference 2018This paper uses a reduced-form implementation of a structural model of constrained oc-cupational choice to explain the probability that an individual receives a wage offer, animportant determinant of whether self-employment is by choice or necessity. Using datafrom Sierra Leone in 2016, the paper estimates the model and finds that the unconditionaldistribution of offer probabilities has a large spike at a very low value (0.013), but that cer-tain characteristics, such as education, being male and residence in the capital city increasethe likelihood of being able to choose not be self-employed.
- ÍtemAcceso AbiertoEffects of pension benefits on pre-retirement labor supply: Evidence from Chile(2018-05-29) Becerra, Oscar; The Economics of Informality Conference 2018This paper describes the effects of pension benefits on pre-retirement labor supplyfor a representative sample of Chilean workers. Using non-linearities in benefits and areform that changed non-contributory pensions, I estimate the effect of pension wealthand pension accrual rate on labor force and contributory-sector participation, earnings,and hours worked. I find that the response of labor supply to future pension benefitsis mostly through the effect of the pension accrual on the probability to contributeto the pension system. My results suggest that pension benefits affect labor supplyallocation, an effect that should be considered in the design of pension reforms.
- 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 AbiertoHeterogenous e ects of informality: An application to labor regulation policy in Russia(2018-05-28) Otero, Andrea; The Economics of Informality Conference 2018The paper estimates the heterogeneous returns of informality in Russia. The em-pirical strategy uses a Marginal Treatment Effect model (MTE). The data comes fromthe Russian Longitudinal Monitoring Survey (RLMS) and a combination of regionaldata for the period 2009-2016. I also constructed a measure of enforcement of laborregulation at the regional level that allows me to identify the parameters of the MTEmodel. I find that formal workers have, on average, 20% higher wage rates than in-formal workers. Additionally, the MTE has a negative slope, which reflects the factthat individuals with a higher propensity score of being formal are those who are morelikely to work formally -they have the largest positive gains of this type of jobs on theirearnings. My estimates also show that those individuals with a very low propensityof working formally can be negatively affected by having these types of jobs. Thesefindings suggest that the decision of working formally versus informally responds toa comparative advantage story and not segmentation of the labor market/ability hy-pothesis.
- ÍtemAcceso AbiertoHow vulnerable are the self-employed? Evidence from Uganda(2018-05-28) Lakemann, Tabea; The Economics of Informality Conference 2018Due to small firm sizes and inter-linkages between household and business finances, small-scale entrepreneurs in developing countries are inherently vulnerable to temporary and per-manent income shortfalls, and hence household poverty. While the ILO generally defines self-employment without employees as vulnerable employment, little empirical research has beendone on the extent to which the self-employed are indeed vulnerable. This paper makes twomain contributions: first, it operationalises the concept of vulnerability in the context of self-employment in developing countries by defining vulnerability as the risk of having businessincome below a living wage threshold. Secondly, it investigates the extent and correlates ofvulnerability. Using a balanced entrepreneur panel dataset from Kampala, Uganda, it is shownthat the self-employed are heterogeneous with respect to vulnerability and observed earnings:while close to 70% of the sample are vulnerable and mostly earn incomes below the threshold,about 30% are non-vulnerable and mostly earn incomes above the living wage. Vulnerable en-trepreneurs are shown to be significantly different from non-vulnerable entrepreneurs in severaldimensions, including those that do not directly predict income.
- ÍtemAcceso AbiertoIlluminating the shadows in U.S. States(2018-05-29) Dincer, Oguzhan (Oz); Adhikari, Bibek; The Economics of Informality Conference 2018What forces the businesses to hidein the shadows? There are two competing theories trying to explainthis behavior, one identifying high tax burdenand the other corruptionas the main force.As Friedman et al. (2000) and Dreher et al. (2008) argue, according to the first theory, businesses are simply not willing to pay high taxes and keep all of their profits to themselves. According to the second theory, they are actually willing to pay taxes, but not willing to pay bribes.In this study, we investigate the relationship between corruption and the size of the shadow economy in U.S. states using a new and novel Shadow Economy Index (SEI) which is developed based on satellite data on night lights.We find that there is a complementary relationship between corruption and the size of the shadow economy across U.S. states supporting the results of Johnson et al. (1998) and Friedman et al. (2000) which use cross country data.
- ÍtemAcceso AbiertoInformal sector employment and poverty in South Africa(2018-05-29) Cichello, Paul; Rogan, Michael; The Economics of Informality Conference 2018We examine the role that informal sector employment plays in poverty reduction using data from the National Income Dynamics Study (NIDS). Using a Shapley decomposition approach, wefind that government transfers and formal sector jobs are the dominant drivers of aggregate poverty reduction. Informal sector jobs currently play a limited role in poverty reduction at the national level. This is primarily driven by the fact that there are relatively few informal sector jobs compared to formal sector jobs. On a per-job basis, the poverty reduction associated with formal sector jobs and informal sector jobs is quite similar. The poverty reduction associated with one informal sector job is generally between 50 to 100 per cent of the poverty reduction associated with one formal sector job (depending on the poverty measure, poverty line and year chosen). Therefore, from a poverty reduction standpoint, policy makers are encouraged to view job gains and losses in the informal sector approximately on par with gains and losses of formal sector jobs.
- 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 AbiertoLabor flows in Venezuela 1997-2013(2018-05-28) Fernández Bujanda, León; Montilla, Mayra; The Economics of Informality Conference 2018This paper measures worker gross flows and instantaneous transition probabilities in Venezuela from 1998 to 2013. We assemble a panel dataset, which is the source of our flow calculations. We contribute to the literature by separating flows from the formal sector employment and from the informal sector employment, which has a significant share of the working` population in Venezuela, to analyze flows between four labor market states. We decompose the contribution of each flow into the cyclical variation of the unemployment rate, the employment-to-population ratio, and the informality rate. This paper finds that change in unemployment is associated mainly with the flow from employment to unemployment. Moreover, the informal sector workers do contribute to fluctuations in the unemployment rate in a larger proportion than the formal sector workers.
- ÍtemAcceso AbiertoLabor Market Search, Informality, and On-The-Job Human Capital Accumulation(2018-05-28) Bobba, Matteo; Flabbi, Luca; Levy, Santiago; Tejada, Mauricio; The Economics of Informality Conference 2018We develop a search and matching model where firms and workers produce outputthat depends both on match-specific productivity and on worker-specific human capi-tal. The human capital is accumulated while working but depreciates while searchingfor a job. Firms optimally post the formality status wages are determined by bar-gaining. The equilibrium is characterized by an endogenous steady state distributionof human capital and by an endogenous formality rate. We estimate the model onlabor market data from Mexico. We find that human capital accumulation on-the-jobis responsible for about one third of the overall value of production. We also find thathuman capital upgrading is slower while working informally than formally. This mag-nifies the negative impact on productivity of the labor market institutions that giveraise to informality.
- 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 AbiertoOptimal Redistribution with a Shadow Economy(2018-05-28) Doligalski, Pawel; Rojas, Luis E.; The Economics of Informality Conference 2018We extend the theory of the optimal redistributive taxation to economies with an informal labor market. The optimal tax formula contains two new terms capturing reported income responses of informal workers on an intensive and an extensive margin. Both terms decrease the optimal tax rates. We quantitatively show that this reduction can be substantial, exceeding 30 percentage points, and we document a large welfare gain of up to 6.4% of consumption from following our tax formula rather than the standard formula. We also provide a novel decomposition of the welfare impact of the shadow economy into labor eficiency and redistribution components. In the quantitative model estimated with Colombian data the shadow economy benefi ts efficiency at the expense of redistribution. As a result, conditional on the optimal tax policy, the presence of the informal sector does not substantially affect social welfare unless social preferences for redistribution are strong.
ÍtemAcceso AbiertoPanel : Economic development, inclusive growth and informality(2018-05-28) Bourguignon, Francois; Hairault, Jean-Olivier; Valencia, Oscar; Clavijo, Sergio; The Economics of Informality Conference 2018; Jaramillo, FernandoDurante el 28 y 29 de mayo la Universidad del Rosario fue epicentro de trascendentales debates sobre la economía informal en el país, congregando reconocidos académicos y miembros de sectores financieros gubernamentales y privados quienes discutieron en torno a las regulaciones, políticas y problemáticas de la informalidad.- ÍtemAcceso AbiertoRegulation, social policy and informality(2018-05-29) Bardhan, Pranab; Margolis, David; Berry, Albert; Montenegro, Santiago; The Economics of Informality Conference 2018; Oviedo, Juan DanielDurante el 28 y 29 de mayo la Universidad del Rosario fue epicentro de trascendentales debates sobre la economía informal en el país, congregando reconocidos académicos y miembros de sectores financieros gubernamentales y privados quienes discutieron en torno a las regulaciones, políticas y problemáticas de la informalidad.
- ÍtemAcceso AbiertoShadow Economies Around the WorldWhat Did We Learn Over the Last 20 Years?(2018-05-29) Medina, Leandro; The Economics of Informality Conference 2018We undertake an extended discussion of the latest developments about the existingand newestimation methods of the shadow economy. New results on the shadow economy for 158 countries all over the world are presented over1991 to 2015. Strengths and weaknesses of these methods are assessed and a critical comparison and evaluation of the methods is carried out. The average size of the shadow economy of the 158 countries over 1991 to 2015 is 31.9percent. The largest onesare Zimbabwe with 60.6percent,andBolivia with 62.3percent of GDP. The lowest ones are Austria with 8.9percent, and Switzerland with 7.2percent. The new methods, especially the new macro method, Currency Demand Approach (CDA) and Multiple Indicators Multiple Causes (MIMIC)in a structured hybrid-model based estimation procedure, are promising approaches from an econometric standpoint, alongside some new micro estimates. These estimations come quite close toothers used by statistical offices or based on surveys.
- ÍtemAcceso AbiertoSocial assistance and informality: Examining the Link in Colombia(2018-05-28) Ospina, Mónica; Saavedra, Fabiola; The Economics of Informality Conference 2018This paper presents evidence on the labor market effects of social assistance programs in the short and medium run. We evaluate the impact of a Conditional Cash Transfer (CCT) program “Familias en Acción” on informality at the individual level in Colombia. We include three different perspectives on informality that capture different aspectsof the problem. We argue that even though it is not a desirable result, being a beneficiary of social programs may create perverse incentives towards informality. Weused survey data from the “Familias en Acción” program to identify whether the program had any effect on workers’ propensity to participate in the informal labor market in Colombia both one and four years after the program’s implementation. Toovercome the problem of unobserved time-invariant differences, our empirical strategy includes a combination of matching algorithms and difference-in-differences methodology. Our results show that worker’s informality condition may be affected by receiving CCT income.
- ÍtemAcceso AbiertoStrict Duality and Overlapping Productivity Distributions between Formal and Informal Firms(2018-05-28) Schipper, Tyler C.; Allen, Jeffrey; Nataraj, Shanthi; The Economics of Informality Conference 2018This paper develops a multi-industry general equilibrium model where en-trepreneurs within each industry can decide to operate formally or informally.The model yields a rich set of predictions about how firms interact in the econ-omy. It reconciles the seeming contradiction between the canonical model ofstrict productivity dualism and the empirical literature that shows an aggre-gate overlap in productivity across the formal and informal sectors. We showthat this “contradiction” is a natural outcome of fixed costs varying acrossindustries. Our model is consistent with a set of stylized fact derived fromWorld Bank Enterprise Surveys. They show that 51% of formal firms reportcompeting with informal firms. Competition decreases with a country’s de-velopment, and larger firms face less competition from informal firms. Thesefacts, in tandem with out model, highlight the complexity of informality indeveloping countries.
- ÍtemAcceso AbiertoThe Impact of Payroll Taxes on Informality : The Case of the 2012 Colombian Tax Reform(2018-05-28) Villar, Leonardo; Fernández, Cristina; The Economics of Informality Conference 2018In 2012, the Colombian Government reduced employer payroll contributions from 29.5 to 16.0 percent. Two years later, the informality rate had diminished by about 4.0 per-centage points. This paper attempts to estimate how much of this reduction was due to the tax reform, isolating the impact of other macroeconomic variables. A natural approach to perform-ing this task is to apply a difference-in-differences methodology using a household survey panel. Since the Colombian survey does not have a panel structure, we simulated one using a matching difference-in-differences methodology. According to the results, the tax reform is associated with a 4.8-percentage-point decrease in the informality of workers affected by the reform in the thirteen main metropolitan areas. This represents approximately half the reduction of the relevant informality rate during that period, affecting mostly salaried men and workers in general with low levels of education.
- ÍtemAcceso AbiertoWho pays? The distributional impacts of slowing economic growth in Latin American labor markets(2018-05-28) Sousa, Liliana; Reyes Ortíz, Giovanni Efraín; The Economics of Informality Conference 2018After a decade of strong growth and notable poverty and inequality reduction, Latin America finds itself in a pattern of regional slowdown. What, if any, are the distributional impacts of the slowdown? We study over 6 million labor market transitions from Argentina, Brazil, Mexico, and Peru to analyze how urban employment dynamics have adjusted to fluctuations in growth over the past decade. In particular, we focus on adjustments to labor market transitions to see if certain transitions, such as movements from employment to unemployment or from formal to informal work, are more sensitive to changes in growth and if some types of workers are more vulnerable to these changes. The results suggest that the emerging economies in this study have not shown significant changes in labor market transitions during the current growth slowdown. However, exploiting a decade of panel data of quarter-to-quarter transitions, we identify some sensitivity of labor market transitions to changes in growth and find that workers in low income quintiles are more likely to experience negative labor transitions than workers in high income quintiles during low growth periods.
