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Self-Employment, Wage Employment and Informality in a Developing Economy

Author

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  • Bennett, John

    (Royal Holloway, University of London)

  • Rablen, Matthew D.

    (University of Sheffield)

Abstract

We construct a simple model incorporating various urban labour market phenomena obtaining in developing economies. Our initial formulation assumes an integrated labour market and allows for entrepreneurship, self-employment and wage employment. We then introduce labour market segmentation. In equilibrium voluntary and involuntary self-employment, formal and informal wage employment, and formal and informal entrepreneurship may all coexist. We illustrate the model by an example calibrated on Latin American data, examining individual labour market transitions and implications of education/training and labour market policies. To diminish informality, cutting the costs of formality is more effective than raising those of informality.

Suggested Citation

  • Bennett, John & Rablen, Matthew D., 2012. "Self-Employment, Wage Employment and Informality in a Developing Economy," IZA Discussion Papers 6406, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp6406
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    References listed on IDEAS

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    Cited by:

    1. John Bennett & Matthew Gould & Matthew Rablen, 2012. "Risk attitudes and informal employment in a developing economy," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 1(1), pages 1-17, December.
    2. Abu Shonchoy & PN Junankar, 2014. "The informal labour market in India: transitory or permanent employment for migrants?," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-27, December.
    3. Xue, Jinjun & Gao, Wenshu & Guo, Lin, 2014. "Informal employment and its effect on the income distribution in urban China," China Economic Review, Elsevier, vol. 31(C), pages 84-93.
    4. Eunice Maria M. N. Dos Santos & João J. Ferreira, 2017. "Analyzing Informal Entrepreneurship: A Bibliometric Survey," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 22(04), pages 1-20, December.
    5. Iain W. Long & Vito Polito, 2017. "Job Search, Unemployment Protection and Informal Work in Advanced Economies," CESifo Working Paper Series 6763, CESifo.

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    More about this item

    Keywords

    self-employment; wage employment; informality;
    All these keywords.

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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