Informality in the Process of Development and Growth
"Informality" is a term used to describe the collection of firms, workers, and activities that operate outside the legal and regulatory systems. It is widespread in the majority of developing countries--in a typical developing economy, th...
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World Bank, Washington, DC
2016
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| Online Access: | http://documents.worldbank.org/curated/en/2016/10/26858497/informality-process-development-growth http://hdl.handle.net/10986/25303 |
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okr-10986-253032021-04-23T14:04:29Z Informality in the Process of Development and Growth Loayza, Norman V. informality minimum wage labor costs economic growth migration labor market financial constraints productivity "Informality" is a term used to describe the collection of firms, workers, and activities that operate outside the legal and regulatory systems. It is widespread in the majority of developing countries--in a typical developing economy, the informal sector produces about 35 percent of gross domestic product and employs 70 percent of the labor force. This paper studies informality in the context of economic development by presenting a model and projections that link informality, regulations, migration, and economic growth. This analytical framework highlights the trade-offs between formality and informality, the relationship between the different types of informality, and the connection between them and the forces of labor, capital, and productivity growth. The paper models the behavior of the informal sector based on the following fundamental asymmetry: formal firms confront higher labor costs while informal firms face higher capital costs and lower productivity. Using mandated minimum wages as the policy-induced distortion, the model first studies the static allocation of formal and informal capital and labor in a modern economy. Second, it opens the possibility of labor migration from a rudimentary economy with an ample supply of labor (rural areas or less advanced neighboring countries). Third, the model analyzes the dynamic behavior of the formal and informal sectors, considering how they affect and are affected by economic growth and labor migration. Then, the paper presents projections for the size of labor informality, in the modern and rudimentary economies, in the next two decades for a large group of countries representing all regions of the world. The projections are based on the calibration and simulation of the model and serve to discuss its usefulness and limitations. 2016-11-01T16:01:15Z 2016-11-01T16:01:15Z 2016-10 Working Paper http://documents.worldbank.org/curated/en/2016/10/26858497/informality-process-development-growth http://hdl.handle.net/10986/25303 English en_US Policy Research Working Paper;No. 7858 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper |
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Digital Repository |
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Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
informality minimum wage labor costs economic growth migration labor market financial constraints productivity |
| spellingShingle |
informality minimum wage labor costs economic growth migration labor market financial constraints productivity Loayza, Norman V. Informality in the Process of Development and Growth |
| relation |
Policy Research Working Paper;No. 7858 |
| description |
"Informality" is a term used
to describe the collection of firms, workers, and activities
that operate outside the legal and regulatory systems. It is
widespread in the majority of developing countries--in a
typical developing economy, the informal sector produces
about 35 percent of gross domestic product and employs 70
percent of the labor force. This paper studies informality
in the context of economic development by presenting a model
and projections that link informality, regulations,
migration, and economic growth. This analytical framework
highlights the trade-offs between formality and informality,
the relationship between the different types of informality,
and the connection between them and the forces of labor,
capital, and productivity growth. The paper models the
behavior of the informal sector based on the following
fundamental asymmetry: formal firms confront higher labor
costs while informal firms face higher capital costs and
lower productivity. Using mandated minimum wages as the
policy-induced distortion, the model first studies the
static allocation of formal and informal capital and labor
in a modern economy. Second, it opens the possibility of
labor migration from a rudimentary economy with an ample
supply of labor (rural areas or less advanced neighboring
countries). Third, the model analyzes the dynamic behavior
of the formal and informal sectors, considering how they
affect and are affected by economic growth and labor
migration. Then, the paper presents projections for the size
of labor informality, in the modern and rudimentary
economies, in the next two decades for a large group of
countries representing all regions of the world. The
projections are based on the calibration and simulation of
the model and serve to discuss its usefulness and limitations. |
| format |
Working Paper |
| author |
Loayza, Norman V. |
| author_facet |
Loayza, Norman V. |
| author_sort |
Loayza, Norman V. |
| title |
Informality in the Process of Development and Growth |
| title_short |
Informality in the Process of Development and Growth |
| title_full |
Informality in the Process of Development and Growth |
| title_fullStr |
Informality in the Process of Development and Growth |
| title_full_unstemmed |
Informality in the Process of Development and Growth |
| title_sort |
informality in the process of development and growth |
| publisher |
World Bank, Washington, DC |
| publishDate |
2016 |
| url |
http://documents.worldbank.org/curated/en/2016/10/26858497/informality-process-development-growth http://hdl.handle.net/10986/25303 |
| _version_ |
1764458907223195648 |