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The formal sector wage premium and firm size for self-employed workers

Author

Listed:
  • Olivier Bargain
  • Eliane Badaoui
  • Prudence Kwenda
  • Eric Strobl
  • Frank Walsh

Abstract

We develop a model where workers may enter self-employment or search for jobs as employees and where there is heterogeneity across workers’ managerial ability. Workers with higher skills will manage larger firms while workers with low managerial ability will run smaller firms and will be in self-employment only when they cannot find a salaried job. For these workers self-employment is a secondary/informal form of employment. The Burdett and Mortensen (1998) equilibrium search model is used for illustration as a special case of our more general framework. Empirical evidence from Mexico is provided and demonstrates that firm size wage effects for employees and self-employed workers are broadly consistent with the model.

Suggested Citation

  • Olivier Bargain & Eliane Badaoui & Prudence Kwenda & Eric Strobl & Frank Walsh, 2012. "The formal sector wage premium and firm size for self-employed workers," Working Papers 201207, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:wpaper:201207
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    File URL: http://hdl.handle.net/10197/3719
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    References listed on IDEAS

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    Cited by:

    1. Finkelstein-Shapiro, Alan & Sarzosa, Miguel, 2012. "Unemployement Protection for Informal Workers in Latin America and the Caribbean," IDB Publications (Working Papers) 4542, Inter-American Development Bank.
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    More about this item

    Keywords

    Self-employment; Managerial ability; Informal sector; Self-employed; Executive ability; Informal sector (Economics);
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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