Pathways to Formalization : Going Beyond the Formality Dichotomy -- The Case of Peru
Too often, academics and policy makers interpret formality as a binary choice and formalization as an irreversible process. Yet, formalization has many facets and shades on the business and labor fronts, and firms may not be able or willing to form...
| Main Authors: | , , , |
|---|---|
| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2018
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/528901534251354144/Pathways-to-formalization-going-beyond-the-formality-dichotomy-the-case-of-Peru http://hdl.handle.net/10986/30241 |
| Summary: | Too often, academics and policy makers
interpret formality as a binary choice and formalization as
an irreversible process. Yet, formalization has many facets
and shades on the business and labor fronts, and firms may
not be able or willing to formalize all at once. This paper
explores the joint process of business and labor
formalization, using a unique panel data set of Peruvian
micro enterprises. The paper finds that business formality
does not imply labor formality, and vice versa. Further,
there is significant churning in and out of different
dimensions of formality within a relatively short period.
Using an instrumental variable approach, the paper infers
that business formalization affects labor formalization but
not the other way around, and that enforcement is a key
driver of formalization. Overall, the analysis shows that
formalization is a gradual and reversible process, with
small entrepreneurs weighing their possibilities in each
pathway to business (often) or labor (less often)
formalization, but rarely both at the same time. |
|---|