Dualistic sector choice and female labour supply: evidence from formal and informal sector in Cameroon

In developing countries, labour supply and activity choices are distorted by the existence of labour market imperfections restricting entry to the activity sectors or rationing the worked hours. The presence of decreasing returns to labour in the informal sector is another specific characteristic of labour market dualism in LDCs. Because of the existence of entry costs, hours rationing in the formal sector and the non-linear earnings function in the informal sector that is quasi-autarkic in labour, the usual separation theorems of the standard labour supply models do not apply. Using data from a sample of women in Yaoundé (Cameroon) in 1993, choosing their activity in different sectors, we show that formal and informal labour markets have features associated with dualism and market imperfections. By contrast with the simplified models in the literature, we estimate a non-linear non-separable integrated model of activity choice and labour supply of female workers, jointly with market imperfections. We identify the effects of explanatory variables of the preferences and the earnings functions in this simultaneous structural framework. The results show that the earnings function in the informal sector is strictly concave in hours, and positively related to the education and experience of workers and the capital of the family firm. The presence of young children has a negative impact on the latent labour supply whereas that of other female members makes easier the supply of labour which is consistent with the existence of substitutabilities in the domestic chores. Other children, age and marital status of the worker also influence the latent labour supply.