the highs and lows of the minimum wage effect a time series cross section study of the canadian law we examine the effects of minimum wage legislation in canada over the period 1975 93 for teenagers we find that a 10 increase in the minimum wage is associated with roughly a 2 5 decrease in employment we also find that this result is driven by low frequency variation in the data at high frequencies the elasticity is positive and insignificant the difference in the elasticity across the bandwidth has implications for the interpretation of employment dynamics as a result of minimum wage policy and experimental design in minimum wage studies it also provides a simple reconciliation of the new minimum wage research which reports very small negative or positive elasticities

money laundering as a crime in the financial sector a new approach to quantitative assessment with an application to italy this study provides an answer to the question of how much cash deposited via a financial institution can be traced back to criminal activities by developing a new approach to measure money laundering and proposing an application to italy we define a model of cash in flows on current accounts considering besides dirty money to be laundered also the legal motivations to deposit cash and the role of the shadow economy we find that the average amount of cash laundered in italy is around 6 of gdp these findings are coherent with estimates of the nonobserved economy obtained in previous studies

informal self employment and macroeconomic fluctuations article i nfo article history informal self employment is a major source of employment in developing countries its cyclical behavior is important to our understanding of the functioning of ldc labor markets but turns out to be surprisingly complex we develop a flexible model with two sectors a formal salaried tradable sector that may be affected by wage rigidities and an informal non tradable self employment sector faced with liquidity constraints to entry this labor market is then embedded in a standard small economy macro model we show that different types of shocks interact with different institutional contexts to produce distinct patterns of comovement between key variables of the model relative salaried self employed incomes relative salaried self employed sector sizes and the real exchange rate model predictions are then tested empirically for argentina brazil colombia and mexico we confirm episodes where the expansion of informal self employment is consistent with the traditional segmentation views of informality however we also identify episodes where informal self employment behaves pro cyclically here informality is driven by relative demand or productivity shocks to the non tradable sector

the economic impacts of minimum wage laws a new look at an old question this article uses a radically different methodology to address the question of the impact of minimum wage laws on employment and earnings the methodology uses the adult wage structure which exists prior to a change in the federal minimum wage to identify the members of the subminimum wage population this allows the parameterization of the disemployment effects of the minimum wage amendment on the subminimum population and the spillover employment effects on the above minimum population the members of the subminimum population are found to experience considerably reduced employment probabilities and annual hours worked conditional on employment some evidence of above minimum spillover effects is also found the paper evaluates the impact of the minimum on the earnings distribution and concludes that the burden of the minimum wage falls most severely on females this effect on adult females is surprisingly neutral with respect to race the greatest beneficiaries of the minimum among the adult populati

the minimum wage and the employment of youth evidence from the nlsy using panel data on individuals from the national longitudinal survey of youth we find that employed individuals who were affected by the increases in the federal minimum wage in 1979 and 1980 were about 3 percent less likely to be employed a year later even after accounting for the fact that workers employed at the minimum wage may differ from their peers in unobserved ways

informality and development in developing countries informal firms account for up to half of economic activity they provide livelihood for billions of people yet their role in economic development remains controversial some like hernando de soto 1989 2000 see informal firms as an untapped reservoir of entrepreneurial energy held back by government regulations in this view unleashing this energy by reducing entry regulations or improving property rights would fuel growth and development others like levy 2008 take a more cynical view stressing the advantages enjoyed by informal firms and workers from avoiding taxes and regulations a report from the mckinsey global institute describes informal firms as parasites competing unfairly with law abiding formal firms farrell 2004 in this view informality should be suppressed not unleashed still others follow the development tradition of lewis 1954 harris and todaro 1970 and more recently rauch 1991 and see informality as a byproduct of poverty from this dual perspective formal and informal firms are fundamentally different productive formal entrepreneurs pay taxes and bear the cost of government regulation to reach new customers raise capital and access public goods these entrepreneurs are often educated and find it more profitable to run bigger formal firms rather than the smaller informal ones in contrast informal entrepreneurs are typically uneducated and unproductive and they run small businesses producing low quality products for low income customers using little capital and

a competitive model of the informal sector abstract in developing nations formal workers tend to be more experienced more educated and earn more than informal workers these facts are often interpreted as evidence that low skill workers face barriers to entry into the formal sector yet there is little empirical evidence that such barriers are important this paper describes a model where in equilibrium the characteristics of formal and informal workers differ systematically even though labor markets are perfectly competitive the informal sector emphasizes low skill work as in the data because informal managers have access to less outside financing and choose to substitute low skill labor for physical capital

one share fits all regional variations in the extent of the shadow economy in europe herwartz h tafenau e and schneider f one share fits all regional variations in the extent of the shadow economy in europe regional studies a multiple indicators multiple causes mimic approach with spatial effects is followed to estimate the extent of the shadow economy in the regions of the european union in 2007 and 2008 the shadow economic sector is smallest in regions of the netherlands and denmark and highest in greece poland portugal and romania in several countries the extent of shadow activities varies markedly across regions calling for regional diversification of measures against it moreover the eligibility status for structural funding by the european union changes for some regions if shadow activities are included in the gross domestic product to their full extent

does local financial development matter we study the effects of differences in local financial development within an integrated financial market we construct a new indicator of financial development by estimating a regional effect on the probability that ceteris paribus a household is shut off from the credit market by using this indicator we find that financial development enhances the probability an individual starts his own business favors entry of new firms increases competition and promotes growth as predicted by theory these effects are weaker for larger firms which can more easily raise funds outside of the local area these effects are present even when we instrument our indicator with the structure of the local banking markets in 1936 which because of regulatory reasons affected the supply of credit in the following 50 years overall the results suggest local financial development is an important determinant of the economic success of an area even in an environment where there are no frictions to capital movements

start up costs limited enforcement and the hidden economy abstract this paper examines how much of the difference in the size of the informal sector and in per capita income across countries can be accounted by regulation costs and enforcement of financial contracts it constructs and solves numerically a general equilibrium model with credit constrained heterogenous agents occupational choices over formal and informal businesses financial frictions and a government sector which imposes taxes and regulations on formal firms the benefit from formalization is better access to outside finance the quantitative exercises suggest that i regulation costs and not the level of enforcement account for differences in the size of the informal sector between united states and mediterranean europe ii for a developing country like peru however contract enforcement and regulation costs are equally important in accounting for the size of the informal sector and iii regulation costs and contract enforcement do not account for most of the income differences observed among countries

shadow economies size causes and consequences using various methods the size of the shadow economy in 76 developing transition and oecd countries is estimated average size varies from 12 percent of gdp for oecd countries to 23 percent for transition countries and 39 percent for developing countries increasing taxation and social security contributions combined with rising state regulations are driving forces for the increase of the shadow economy especially in oecd countries according to some findings corruption has a positive impact on the size of the shadow economy and a growing shadow economy has a negative effect on official gdp growth

modelling the informal sector formally abstract the theoretical characterization of formal informal sector dualism by labor market dualism is integrated with its empirical characterization by size dualism by supposing that the minimum formal sector wage is only enforced for firms greater than a certain size a firm s size varies directly with the talent of its enterpreneur manager and the choice between formal and informal sector entrepreneurship is determined endogenously it is then shown that the size gap between the smallest formal sector firm and largest informal sector firm varies directly with the formal informal sector wage differential which in turn is shown as expected to increase the further is the minimum wage above the market clearing wage the comparative statics of changes in the size of the firm above which the minimum wage is enforced are also examined

the effect of minimum wages on youth employment in canada a panel study previous u s panel estimates of minimum wage effects have been criticized on the grounds that their identification rests on comparisons of low wage and high wage workers using canadian panel data for 1988 90 i compare estimates based on the traditional u s methodology with those based on samples of low wage workers exclusively the results would appear to vindicate the critics the minimum wage effect from the latter approach is virtually zero yet estimates from different subgroups of low wage workers indicate that there is a significant disemployment effect for those with longer low wage employment histories this highlights the heterogeneity within low wage workers and the importance of carefully defining the target group not solely based on workers wages

informal employment safety net or growth engine summary is informal employment a safety net or a growth engine to address this question this paper studies the trends and cycles of informal employment it first presents a theoretical model of long and short run behavior of informal labor then it analyzes these relationships empirically using the share of self employment in the labor force as the proxy for informal employment in the long run informality is larger when labor productivity is lower government services weaker and business flexibility less prevalent in the short run informal employment behaves counter cyclically indicating that it acts primarily as a safety net the degree of counter cyclicality however varies inversely with the size of informal labor itself

modeling informality formally households and firms i introduction recent estimates indicate that around 10 of gross domestic product gdp in the united states is produced by individuals or firms that evade taxes schneider and enste 2000 in latin america approximately 50 of all salaried employees work informally an important question is therefore what are the determinants of informality unfortunately three decades of research have not yet yielded a consensus opinion on this point the traditional explanation initiated with the work of lewis 1954 assumes the existence of segmented labor markets in which some workers do not have access to jobs in the regulated formal sector these workers are forced to accept lower paying informal sector jobs that usually involve inferior working conditions while this view has become prevalent in the development literature direct empirical tests of the premise that informal workers would expect higher wages in the formal sector yield mixed results for instance magnac 1991 maloney 2004 and pratap and quintin 2004 do not find compelling evidence of segmentation between the formal and the informal sectors using data from colombia mexico and argentina respectively it is nonetheless certainly plausible that the presence of unions might segment the labor market layard et al 1991 however even if we believe that unionization has been an important factor in determining labor market segmentation in the past the pronounced decline of unionization throughout latin america over the last two decades seems to be a less satisfactory explanation of the phenomenon at the present time especially since informality increased in most countries in latin america during the same period gasparini and tornarolli 2006 another approach emphasizes the role of labor market regulation and taxation as the main cause of informality a pioneering study by de soto 1989 describes how informal workers develop their own laws and institutions to make up for the shortcomings of the official legal system it is certainly true that the size of the shadow economy is affected by the burden of taxes and social security contributions as well as by the many other regulations governing the official economy the problem with adopting this explanation of informality unreservedly however is that it overlooks the fact that workers have nonpecuniary preferences for the sector they work for and these preferences play a role in determining the equilibrium level of formality of an economy in particular workers in the informal sector are not eligible for socially mandated benefits three stylized facts characterize informality 1 small firms tend to operate informally while large firms tend to operate formally 2 unskilled workers tend to be informal while skilled ones have formal jobs 3 ceteris paribus secondary workers a worker other than the household head are less likely to operate formally than primary workers in this paper we present a model of an economy in which the sizes and wages of the formal and informal sectors are endogenously determined that accounts for these three facts our model entails a continuum of types on both sides of the labor market i e firms and workers firms choose whether to operate formally or informally and workers choose in what sector they work in equilibrium managerial talent determines size dualism at the firm level and human capital is the factor that determines whether workers are employed in the formal or informal sector in our model both heterogeneous firms and workers have preferences over the sectors they operate and choose optimally whether to function formally or informally by contrast a prominent feature of the preexisting literature is the idea that workers decisions play no role in determining the equilibrium of the economy thus our model is the first one in which policies that affect workers preferences as well of course as firm preferences over the formal or the informal sector such as pension plans public health issues and unemployment and any social benefits will affect the sizes and wages of the formal and the informal sectors

government effectiveness and regional variation in informal employment abstract this article analyses the role of government effectiveness in the determination of informal employment a theoretical model is developed in which local governance and worker skill level are assumed to influence the decision of the worker whether to seek employment in the formal or informal sectors the model is assessed empirically using data from brazil where almost half of the urban labour force is employed informally the empirical analysis supports the predictions of the model and suggests that the probability of a worker being employed informally is lower in regions with better governance and higher average education

minimum wages and poverty will a 9 50 federal minimum wage really help the working poor using data drawn from the march current population survey we find that state and federal minimum wage increases between 2003 and 2007 had no effect on state poverty rates when we then simulate the effects of a proposed federal minimum wage increase from 7 25 to 9 50 per hour we find that such an increase will be even more poorly targeted to the working poor than was the last federal increase from 5 15 to 7 25 per hour assuming no negative employment effects only 11 3 of workers who will gain live in poor households compared to 15 8 from the last increase when we allow for negative employment effects we find that the working poor face a disproportionate share of the job losses our results suggest that raising the federal minimum wage continues to be an inadequate way to help the working poor

taxation wage controls and the informal sector abstract in this paper we study the effects of taxation and wage controls in a developing economy with an informal sector for that purpose we build a model with firm heterogeneity in which a formal and an informal sector endogenously emerge in some productive branches of the economy based on the assumption that the marginal cost of tax and regulation evasion increases with the size of the firm our model offers an explanation for the observed discontinuity in the distribution of firms size the missing middle three forms of dualism scale wage and evasion consistent with market segmentation are obtained the model accounts for the presence of waiting unemployment that seems particularly pervasive in urban regions a computable general equilibrium cge model for cameroon is built incorporating these features various reforms of the tax and regulation system are simulated and their effects on the extent of the informal sector are analyzed

are the effects of minimum wage increases always small new evidence from a case study of new york state the authors estimate the effect of the 2004 6 new york state nys minimum wage increase from 5 15 to 6 75 per hour on the employment rates of 16 to 29 year olds who do not have a high school diploma using data drawn from the 2004 and 2006 current population survey they employ difference in difference estimates to show that the nys minimum wage increase is associated with a 20 2 to 21 8 reduction in the employment of less skilled less educated workers with the largest effects on those aged 16 to 24 their estimates imply a median employment elasticity with respect to the minimum wage of around 0 7 large relative to previous researchers estimates the authors findings are robust to their choice of geographically proximate comparison states the use of a more highly skilled within state comparison group and a synthetic control design approach moreover their results provide plausible evidence that state minimum wage increases can have substantial adverse labor demand effects for low skilled i

minimum wage impacts on youth employment transitions 1993 1999 abstract the longitudinal nature of the master file of the survey of labour and income dynamics slid for the period 1993 9 enables comparing transitions from employment to non employment for individuals affected by minimum wage changes with appropriate comparison groups not affected by minimum wages this is based on the large number 24 of minimum wage changes that have occurred across the different provincial jurisdictions in canada over the 1990s the results indicate that the minimum wage increases have increased the transition from employment to non employment of employed low wage youths who are at risk of being affected by a minimum wage increase by around 6 percentage points ranging from 4 to 8 percentage points these disemployment effects in turn imply minimum wage elasticities of about 0 4 ranging from 0 3 to 0 5

the impact of minimum wages on labour market transitions we investigate dierences in labour market transition rates in high versus low minimum wage regimes using canadian data spanning 1979 to 2008 the data include consistent questions on job tenure and reason for job separation for the whole period over the same time frame there were over 140 minimum wage changes in canada we nd that higher minimum wages are associated with lower hiring rates but also with lower job separation rates importantly the reduced separation rates are due mainly to reductions in layos occur in the rst 6 months of a job and are present for unskilled workers of all ages our estimates imply that a 10 increase in the minimum wage generates a 3 9 reduction in the layo rate we present a search and matching model that ts with these patterns and test its implications overall our results imply

short long and spatial dynamics of informal employment di caro p and nicotra g short long and spatial dynamics of informal employment regional studies this paper analyses regional shadow labour markets cross regional migration flows are introduced in a stochastic two sector model used to study the effects of regional interactions on informality empirical results show that informal activities across italian regions are driven by the inefficient provision of public goods and high taxes regional connections are found to be significant place specific reactions of informal employment to national shocks in the official economy are investigated finding that the informal sector can act as a complement to or a substitute for formal activities the summary of the results and policy conclusions are then discussed

it s the market the broad based rise in the return to top talent abstract one explanation that has been proposed for rising inequality is that technical change allows highly talented individuals or superstars to manage or perform on a larger scale applying their talent to greater pools of resources and reaching larger numbers of people thus becoming more productive and higher paid others argue that managerial power has increased in a way that allows those at the top to receive higher pay that social norms against higher pay levels have broken down or that tax policy affects the distribution of surpluses between employers and employees we offer evidence bearing on the different theories explaining the rise in inequality in the united states over recent decades first we look the increase in pay at the highest income levels across occupations we consider the income share of the top 1 percent over time and we turn to evidence on inequality of wealth at the top in looking at the wealthiest americans we find that those in the forbes 400 are less likely to have

the size and development of the shadow economy an empirical investigation from states of india abstract using the state level data from india this paper investigates the size of the hidden economy in indian states over the period 1974 75 to 1995 96 our analysis has shown that after liberalization of the indian economy in 1991 92 the growth in the size of the hidden economy has decreased on an average our results show that the growth in the size of the hidden economy is approximately 4 less in scheduled election years than in all other years we also demonstrate that the growth is significantly lower in those states where the coalition government is in power an increased growth of newspapers and the literacy rates translate to cleaner governance e g to fewer amounts of shadow economy activities in the economy