Informal Self-Employment and Macroeconomic Fluctuations

Informal self-employment is a major source of employment in developing countries. Its cyclical behavior is important to our understanding of the functioning of LDC labor markets, but turns out to be surprisingly complex. We develop a flexible model with two sectors: a formal salaried (tradable) sect...

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Main Authors:	Fiess, Norbert M., Fugazza, Marco, Maloney, William F.
Format:	Journal Article
Language:	EN
Published:	2012
Subjects:	Employment Unemployment Wages Intergenerational Income Distribution Aggregate Human Capital E240 Business Fluctuations Cycles E320 Labor Demand J230 Macroeconomic Analyses of Economic Development O110 Economic Development: Human Resources Human Development Income Distribution Migration O150
Online Access:	http://hdl.handle.net/10986/5734

id	okr-10986-5734
recordtype	oai_dc
spelling	okr-10986-57342021-04-23T14:02:23Z Informal Self-Employment and Macroeconomic Fluctuations Fiess, Norbert M. Fugazza, Marco Maloney, William F. Employment Unemployment Wages Intergenerational Income Distribution Aggregate Human Capital E240 Business Fluctuations Cycles E320 Labor Demand J230 Macroeconomic Analyses of Economic Development O110 Economic Development: Human Resources Human Development Income Distribution Migration O150 Informal self-employment is a major source of employment in developing countries. Its cyclical behavior is important to our understanding of the functioning of LDC labor markets, but turns out to be surprisingly complex. We develop a flexible model with two sectors: a formal salaried (tradable) sector that may be affected by wage rigidities, and an informal (non tradable) self-employment sector faced with liquidity constraints to entry. This labor market is then embedded in a standard small economy macro model. We show that different types of shocks interact with different institutional contexts to produce distinct patterns of comovement between key variables of the model: relative salaried/self-employed incomes, relative salaried/self-employed sector sizes and the real exchange rate. Model predictions are then tested empirically for Argentina, Brazil, Colombia, and Mexico. We confirm episodes where the expansion of informal self-employment is consistent with the traditional segmentation views of informality. However, we also identify episodes where informal self-employment behaves "pro-cyclically"; here, informality is driven by relative demand or productivity shocks to the non tradable sector. 2012-03-30T07:34:16Z 2012-03-30T07:34:16Z 2010 Journal Article Journal of Development Economics 03043878 http://hdl.handle.net/10986/5734 EN http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Journal Article Argentina Brazil Colombia Mexico
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	EN
topic	Employment Unemployment Wages Intergenerational Income Distribution Aggregate Human Capital E240 Business Fluctuations Cycles E320 Labor Demand J230 Macroeconomic Analyses of Economic Development O110 Economic Development: Human Resources Human Development Income Distribution Migration O150
spellingShingle	Employment Unemployment Wages Intergenerational Income Distribution Aggregate Human Capital E240 Business Fluctuations Cycles E320 Labor Demand J230 Macroeconomic Analyses of Economic Development O110 Economic Development: Human Resources Human Development Income Distribution Migration O150 Fiess, Norbert M. Fugazza, Marco Maloney, William F. Informal Self-Employment and Macroeconomic Fluctuations
geographic_facet	Argentina Brazil Colombia Mexico
relation	http://creativecommons.org/licenses/by-nc-nd/3.0/igo
description	Informal self-employment is a major source of employment in developing countries. Its cyclical behavior is important to our understanding of the functioning of LDC labor markets, but turns out to be surprisingly complex. We develop a flexible model with two sectors: a formal salaried (tradable) sector that may be affected by wage rigidities, and an informal (non tradable) self-employment sector faced with liquidity constraints to entry. This labor market is then embedded in a standard small economy macro model. We show that different types of shocks interact with different institutional contexts to produce distinct patterns of comovement between key variables of the model: relative salaried/self-employed incomes, relative salaried/self-employed sector sizes and the real exchange rate. Model predictions are then tested empirically for Argentina, Brazil, Colombia, and Mexico. We confirm episodes where the expansion of informal self-employment is consistent with the traditional segmentation views of informality. However, we also identify episodes where informal self-employment behaves "pro-cyclically"; here, informality is driven by relative demand or productivity shocks to the non tradable sector.
format	Journal Article
author	Fiess, Norbert M. Fugazza, Marco Maloney, William F.
author_facet	Fiess, Norbert M. Fugazza, Marco Maloney, William F.
author_sort	Fiess, Norbert M.
title	Informal Self-Employment and Macroeconomic Fluctuations
title_short	Informal Self-Employment and Macroeconomic Fluctuations
title_full	Informal Self-Employment and Macroeconomic Fluctuations
title_fullStr	Informal Self-Employment and Macroeconomic Fluctuations
title_full_unstemmed	Informal Self-Employment and Macroeconomic Fluctuations
title_sort	informal self-employment and macroeconomic fluctuations
publishDate	2012
url	http://hdl.handle.net/10986/5734
_version_	1764396120532844544

Informal Self-Employment and Macroeconomic Fluctuations

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