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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Main Authors: Loayza, Norman V., Rigolini, Jamele
Format: Policy Research Working Paper
Language:English
en_US
Published: World Bank, Washington, DC 2012
Subjects:
GDP
Online Access:http://documents.worldbank.org/curated/en/2006/12/7245835/informality-trends-cycles
http://hdl.handle.net/10986/8855
id okr-10986-8855
recordtype oai_dc
spelling 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
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
en_US
topic 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