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Essays on informal labour markets in developing countries

Narita, R.; (2011) Essays on informal labour markets in developing countries. Doctoral thesis, UCL (University College London).

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Abstract

Labour markets of developing countries are typically characterised by low unemployment but high informality. In Latin America, about half of the workforce is informal. This includes wage workers without registration and those self employed who do not make social security contributions. Informality is an issue because it has been associated with low productivity jobs and low general human capital investment, despite being a source of employment. The first two chapters focus on extending and estimating labour market models to evaluate the impact of labour market policies on welfare, employment, informality, and wages in developing countries. The first chapter presents a model with search frictions where workers and firms decide whether to be formal or informal. The second chapter assumes firms’ sector is exogenous however allows for workers to become self employed. In common, simulations using these two different frameworks show that increasing the cost of informality has a small impact on unemployment and informality levels. Such policies reduce informal sector wages which are on average the lowest in the economy. Consequently, wage inequality increases. Nonetheless, results show that welfare may improve significantly. The first reason is the increased competition in the formal sector which may occur if firms can choose sector. The second reason is a large increase in formal labour force size because of improved rent-sharing between firms and workers since the latter can enter self employment. In either case, formal wages rise, along with all workers’ welfare. The third chapter provides an empirical test for the impact of enforcement of labour legislation on measures of workers’ welfare. Stricter enforcement increases compliance with mandated benefits (registration, social security and minimum wage). However, there are two tradeoffs, one between the provision of mandated benefits and wages, and another between mandated and important optional job benefits, such as private health.

Type:Thesis (Doctoral)
Title:Essays on informal labour markets in developing countries
Language:English
Additional information:Permission for digitisation not received
UCL classification:UCL > School of Arts and Social Sciences > Faculty of Social and Historical Sciences > Economics

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