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Informal versus Formal: A Panel Data Analysis of Earnings Gaps in Madagascar

Author

Listed:
  • Christophe Nordman

    (DIAL, IRD, Paris)

  • Faly Rakotomanana

    (INSTAT - DSM, Antananarivo)

  • François Roubaud

    (DIAL, IRD, Paris)

Abstract
(english) In spite of its predominant economic weight in developing countries, little is known about informal sector income dynamics vis-à-vis the formal sector. The few works using household surveys to tackle this issue, mainly consider some emerging countries. As a matter of consequence, there is still no way to generalize the (diverging) results to very poor part of the developing world. Taking advantage of the rich 1-2-3 Surveys dataset in Madagascar, in particular its four waves panel data (2000, 2001, 2003 and 2004), we assess the magnitude of various formal/informal sector earnings gaps while addressing heterogeneity issues at three different levels: the worker, the job (wage employment vs. selfemployment) and the earnings distribution. The questions asked are the following: Is there an informal sector job earnings penalty? Do some informal sector jobs provide pecuniary premiums? Which ones? Do possible gaps vary along the earnings distribution? Standard earnings equations are estimated at the mean and at various conditional quantiles of the earnings distribution. In particular, we estimate fixed effects quantile regressions to control for unobserved individual characteristics, focusing particularly on heterogeneity within both the formal and informal sector categories. Our results suggest that the informal sector earnings gap highly depends on the workers’ job status and on their relative position in the earnings distribution. Penalties may in some cases turn into premiums. By comparing our results with studies in other developing countries, we draw conclusions highlighting the Madagascar’s labour market specificity. _________________________________ (français) En dépit d'un poids économique massif dans les pays en développement, on sait peu de choses sur la structure des revenus du secteur informel, notamment en comparaison du secteur formel. Les quelques papiers qui ont abordé cette question à travers des enquêtes ménages traitent surtout de quelques pays émergents. En conséquence, il n'est pas possible de généraliser leurs conclusions, d'ailleurs divergentes, aux pays les plus pauvres notamment africains. En mobilisant une base de données unique tirée des enquêtes 1-2-3 à Madagascar, conduites par les soins des auteurs, en particulier des quatre vagues de panel (2000, 2001, 2003 et 2004), nous examinons l'ampleur du différentiel de rémunération formel/informel en tenant compte de l'hétérogénéité à trois niveaux différents : celle des travailleurs, de leurs emplois (salariés vs non salariés) et de la distribution des revenus. Les questions abordées sont les suivantes : les travailleurs du secteur informel sont-ils toujours financièrement pénalisés ? Si non, quels sont les emplois de ce secteur qui bénéficient d'une prime et à combien se monte-t-elle ? Les écarts varient-ils au long de la distribution ? Nous estimons des équations de gains à la moyenne et à différents points de la distribution des revenus (régressions quantile). Dans les deux cas, des modèles à effets fixes sont estimés de contrôler les caractéristiques inobservables des individus, en se centrant sur l'hétérogénéité interne des deux secteurs (formel et informel). Nos résultats montrent que le différentiel de rémunération dépend fortement du statut dans l'emploi et de la position relative dans la distribution des revenus. Dans certains cas, le secteur informel apparaît plus rémunérateur. La comparaison avec les études réalisées dans d'autres PED permet de mettre en lumière les spécificités du marché du travail à Madagascar.

Suggested Citation

  • Christophe Nordman & Faly Rakotomanana & François Roubaud, 2012. "Informal versus Formal: A Panel Data Analysis of Earnings Gaps in Madagascar," Working Papers DT/2012/12, DIAL (Développement, Institutions et Mondialisation).
    • Handle: RePEc:dia:wpaper:dt201212
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    informal employment; earnings gap; transition matrix; quantile regressions; panel data; Madagascar.;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • 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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