Informality Trends and Cycles
This paper studies the trends and cycles of informal employment. It first presents a theoretical model where the size of informal employment is determined by the relative costs and benefits of informality and the distribution of workers' skills. In the long run, informal employment varies with...
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2012
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Online Access: | http://documents.worldbank.org/curated/en/2006/12/7245835/informality-trends-cycles http://hdl.handle.net/10986/8855 |
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okr-10986-88552021-04-23T14:02:41Z Informality Trends and Cycles Loayza, Norman V. Rigolini, Jamele ABSOLUTE DIFFERENCE ACTIVE LABOR ADVERSE SELECTION AGGREGATE OUTPUT BUSINESS CYCLE COMPARATIVE ANALYSIS COUNTRY CHARACTERISTICS COUNTRY DUMMY COUNTRY-BY-COUNTRY BASIS CUMULATIVE FUNCTION DATA SET DEPENDENT VARIABLE DEVELOPED COUNTRIES DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DISCUSSIONS DISEQUILIBRIUM ECONOMIC ACTIVITY ECONOMIC GROWTH ELASTICITY EMPIRICAL ANALYSIS EMPIRICAL EVIDENCE EMPIRICAL FINDINGS EMPIRICAL MODEL EMPIRICAL SECTION EMPLOYMENT GROWTH EMPLOYMENT RATE ENTRY COSTS EQUILIBRIUM EQUILIBRIUM LEVEL EXOGENOUS VARIABLE EXPLANATORY POWER EXPLANATORY VARIABLE GDP GDP PER CAPITA GOVERNMENT EXPENDITURES GROSS INCOME GROWTH RATE INCOME INCOME LEVELS INEQUALITY INFORMAL ECONOMIES INFORMAL ECONOMY INFORMAL EMPLOYMENT INFORMAL LABOR MARKETS INFORMAL SECTOR INTEREST RATES LABOR FORCE LABOR MARKET LABOR ORGANIZATION LABOR TURNOVER LATIN AMERICAN LONG-RUN EQUILIBRIUM LONG-RUN GROWTH MACROECONOMIC SHOCKS MARGINAL COST MIDDLE INCOME COUNTRIES MINIMUM WAGE MINIMUM WAGES MONETARY ECONOMICS MORAL HAZARD NATIONAL INCOME NEGATIVE SHOCKS NEGATIVE SIGN OPPORTUNITY COST PER CAPITA GROWTH POLICY RESEARCH POLITICAL ECONOMY POSITIVE SHOCKS PREVIOUS SECTION PRIVATE AGENTS PRODUCTIVITY PRODUCTIVITY DIFFERENTIAL PRODUCTIVITY INCREASES PRODUCTIVITY LEVEL PUBLIC ECONOMICS PUBLIC POLICY PUBLIC SERVICES REAL EXCHANGE RATE RELATIVE EARNINGS SELF EMPLOYED SELF EMPLOYED WORKERS SELF EMPLOYMENT SERIES DATA SERIES OBSERVATIONS SKILL LEVEL SMALL MANUFACTURING TAXATION TOTAL EMPLOYMENT TOTAL WORKERS WORK IN PROGRESS WORKER WORKERS WORKING This paper studies the trends and cycles of informal employment. It first presents a theoretical model where the size of informal employment is determined by the relative costs and benefits of informality and the distribution of workers' skills. In the long run, informal employment varies with the trends in these variables, and in the short run it reacts to accommodate transient shocks and to close the gap that separates it from its trend level. The paper then uses an error-correction framework to examine empirically informality's long- and short-run relationships. For this purpose, it uses country-level data at annual frequency for a sample of industrial and developing countries, with the share of self-employment in the labor force as the proxy for informal employment. The paper finds that, in the long run, informality is larger in countries that have lower GDP per capita and impose more costs to formal firms in the form of more rigid business regulations, less valuable police and judicial services, and weaker monitoring of informality. In the short run, informal employment is found to be counter-cyclical for the majority of countries, with the degree of counter-cyclicality being lower in countries with larger informal employment and better police and judicial services. Moreover, informal employment follows a stable, trend-reverting process. These results are robust to changes in the sample and to the influence of outliers, even when only developing countries are considered in the analysis. 2012-06-22T20:10:22Z 2012-06-22T20:10:22Z 2006-12 http://documents.worldbank.org/curated/en/2006/12/7245835/informality-trends-cycles http://hdl.handle.net/10986/8855 English en_US Policy Research Working Paper; No. 4078 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |
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English en_US |
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ABSOLUTE DIFFERENCE ACTIVE LABOR ADVERSE SELECTION AGGREGATE OUTPUT BUSINESS CYCLE COMPARATIVE ANALYSIS COUNTRY CHARACTERISTICS COUNTRY DUMMY COUNTRY-BY-COUNTRY BASIS CUMULATIVE FUNCTION DATA SET DEPENDENT VARIABLE DEVELOPED COUNTRIES DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DISCUSSIONS DISEQUILIBRIUM ECONOMIC ACTIVITY ECONOMIC GROWTH ELASTICITY EMPIRICAL ANALYSIS EMPIRICAL EVIDENCE EMPIRICAL FINDINGS EMPIRICAL MODEL EMPIRICAL SECTION EMPLOYMENT GROWTH EMPLOYMENT RATE ENTRY COSTS EQUILIBRIUM EQUILIBRIUM LEVEL EXOGENOUS VARIABLE EXPLANATORY POWER EXPLANATORY VARIABLE GDP GDP PER CAPITA GOVERNMENT EXPENDITURES GROSS INCOME GROWTH RATE INCOME INCOME LEVELS INEQUALITY INFORMAL ECONOMIES INFORMAL ECONOMY INFORMAL EMPLOYMENT INFORMAL LABOR MARKETS INFORMAL SECTOR INTEREST RATES LABOR FORCE LABOR MARKET LABOR ORGANIZATION LABOR TURNOVER LATIN AMERICAN LONG-RUN EQUILIBRIUM LONG-RUN GROWTH MACROECONOMIC SHOCKS MARGINAL COST MIDDLE INCOME COUNTRIES MINIMUM WAGE MINIMUM WAGES MONETARY ECONOMICS MORAL HAZARD NATIONAL INCOME NEGATIVE SHOCKS NEGATIVE SIGN OPPORTUNITY COST PER CAPITA GROWTH POLICY RESEARCH POLITICAL ECONOMY POSITIVE SHOCKS PREVIOUS SECTION PRIVATE AGENTS PRODUCTIVITY PRODUCTIVITY DIFFERENTIAL PRODUCTIVITY INCREASES PRODUCTIVITY LEVEL PUBLIC ECONOMICS PUBLIC POLICY PUBLIC SERVICES REAL EXCHANGE RATE RELATIVE EARNINGS SELF EMPLOYED SELF EMPLOYED WORKERS SELF EMPLOYMENT SERIES DATA SERIES OBSERVATIONS SKILL LEVEL SMALL MANUFACTURING TAXATION TOTAL EMPLOYMENT TOTAL WORKERS WORK IN PROGRESS WORKER WORKERS WORKING |
spellingShingle |
ABSOLUTE DIFFERENCE ACTIVE LABOR ADVERSE SELECTION AGGREGATE OUTPUT BUSINESS CYCLE COMPARATIVE ANALYSIS COUNTRY CHARACTERISTICS COUNTRY DUMMY COUNTRY-BY-COUNTRY BASIS CUMULATIVE FUNCTION DATA SET DEPENDENT VARIABLE DEVELOPED COUNTRIES DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DISCUSSIONS DISEQUILIBRIUM ECONOMIC ACTIVITY ECONOMIC GROWTH ELASTICITY EMPIRICAL ANALYSIS EMPIRICAL EVIDENCE EMPIRICAL FINDINGS EMPIRICAL MODEL EMPIRICAL SECTION EMPLOYMENT GROWTH EMPLOYMENT RATE ENTRY COSTS EQUILIBRIUM EQUILIBRIUM LEVEL EXOGENOUS VARIABLE EXPLANATORY POWER EXPLANATORY VARIABLE GDP GDP PER CAPITA GOVERNMENT EXPENDITURES GROSS INCOME GROWTH RATE INCOME INCOME LEVELS INEQUALITY INFORMAL ECONOMIES INFORMAL ECONOMY INFORMAL EMPLOYMENT INFORMAL LABOR MARKETS INFORMAL SECTOR INTEREST RATES LABOR FORCE LABOR MARKET LABOR ORGANIZATION LABOR TURNOVER LATIN AMERICAN LONG-RUN EQUILIBRIUM LONG-RUN GROWTH MACROECONOMIC SHOCKS MARGINAL COST MIDDLE INCOME COUNTRIES MINIMUM WAGE MINIMUM WAGES MONETARY ECONOMICS MORAL HAZARD NATIONAL INCOME NEGATIVE SHOCKS NEGATIVE SIGN OPPORTUNITY COST PER CAPITA GROWTH POLICY RESEARCH POLITICAL ECONOMY POSITIVE SHOCKS PREVIOUS SECTION PRIVATE AGENTS PRODUCTIVITY PRODUCTIVITY DIFFERENTIAL PRODUCTIVITY INCREASES PRODUCTIVITY LEVEL PUBLIC ECONOMICS PUBLIC POLICY PUBLIC SERVICES REAL EXCHANGE RATE RELATIVE EARNINGS SELF EMPLOYED SELF EMPLOYED WORKERS SELF EMPLOYMENT SERIES DATA SERIES OBSERVATIONS SKILL LEVEL SMALL MANUFACTURING TAXATION TOTAL EMPLOYMENT TOTAL WORKERS WORK IN PROGRESS WORKER WORKERS WORKING Loayza, Norman V. Rigolini, Jamele Informality Trends and Cycles |
relation |
Policy Research Working Paper; No. 4078 |
description |
This paper studies the trends and cycles of informal employment. It first presents a theoretical model where the size of informal employment is determined by the relative costs and benefits of informality and the distribution of workers' skills. In the long run, informal employment varies with the trends in these variables, and in the short run it reacts to accommodate transient shocks and to close the gap that separates it from its trend level. The paper then uses an error-correction framework to examine empirically informality's long- and short-run relationships. For this purpose, it uses country-level data at annual frequency for a sample of industrial and developing countries, with the share of self-employment in the labor force as the proxy for informal employment. The paper finds that, in the long run, informality is larger in countries that have lower GDP per capita and impose more costs to formal firms in the form of more rigid business regulations, less valuable police and judicial services, and weaker monitoring of informality. In the short run, informal employment is found to be counter-cyclical for the majority of countries, with the degree of counter-cyclicality being lower in countries with larger informal employment and better police and judicial services. Moreover, informal employment follows a stable, trend-reverting process. These results are robust to changes in the sample and to the influence of outliers, even when only developing countries are considered in the analysis. |
format |
Publications & Research :: Policy Research Working Paper |
author |
Loayza, Norman V. Rigolini, Jamele |
author_facet |
Loayza, Norman V. Rigolini, Jamele |
author_sort |
Loayza, Norman V. |
title |
Informality Trends and Cycles |
title_short |
Informality Trends and Cycles |
title_full |
Informality Trends and Cycles |
title_fullStr |
Informality Trends and Cycles |
title_full_unstemmed |
Informality Trends and Cycles |
title_sort |
informality trends and cycles |
publisher |
World Bank, Washington, DC |
publishDate |
2012 |
url |
http://documents.worldbank.org/curated/en/2006/12/7245835/informality-trends-cycles http://hdl.handle.net/10986/8855 |
_version_ |
1764406657377370112 |