urbanization and poverty reduction the role of rural diversification and secondary towns a rather unique panel tracking more than 3 300 individuals from households in rural kagera tanzania during 1991 4 2010 shows that about one in two individuals households who exited poverty did so by transitioning from agriculture into the rural nonfarm economy or secondary towns only one in seven exited poverty by migrating to a large city although those moving to a city experienced on average faster consumption growth further analysis of a much larger cross country panel of 51 developing countries cannot reject that rural diversification and secondary town development lead to more inclusive growth patterns than metropolitization indications are that this follows because more of the poor find their way to the rural nonfarm economy and secondary towns than to distant cities the development discourse would benefit from shifting beyond the rural urban dichotomy and focusing instead more on how best to urbanize and develop the rural nonfarm economy and secondary towns

remittances and the informal economy abstract many developing countries are characterized by a large informal sector and are also often heavily dependent on remittance inflows from abroad we develop a general equilibrium framework to understand better the dynamic absorption of remittances in a two sector small open economy by incorporating many of the stylized features of the informal sector calibrating the model to yield a long run equilibrium consistent with sample averages for 56 developing countries for the period 1990 2014 we show that the effect of remittances depends critically on how they impinge on the recipient economy i e whether these inflows are i permanent or temporary ii associated with a collateral effect to securitize borrowing and iii exogenous or countercyclical we also identify the conditions under which remittances are associated with an expansion of the informal sector as well as the dutch disease effect

optimal self employment income tax enforcement abstract most models of optimal income tax enforcement assume that income is either random or solely remunerates labor neglecting that auditing strategies may depend on observable inputs this paper outlines a model to optimally monitor self employed entrepreneurs when in addition to reported profits the tax collection agency also observes the number of workers employed or any other input variable at each firm we show that by conditioning the monitoring strategy only on labor input it is optimal for the irs to audit firms in a way that generates some empirical regularities like the missing middle we also show that the optimal direct mechanism can be implemented by an indirect monitoring strategy that is consistent with actual irs practices in particular the irs calculates inputted income as function of labor whenever an entrepreneur reports profits that are lower than inputted income she is randomly monitored finally we formalize a model of optimal presumption taxation in which inputted income is the tax base to compare revenue collection across tax systems

a helping hand or the long arm of the law experimental evidence on what governments can do to formalize firms many governments have spent much of the past decade trying to extend a helping hand to informal businesses by making it easier and cheaper for them to formalize much less effort has been devoted to raising the costs of remaining informal through increasing enforcement of existing regulations this paper reports on a field experiment conducted in belo horizonte brazil in order to test which government actions work in getting informal firms to register firms were randomized to a control group or one of four treatment groups the first received information about how to formalize the second received this information and free registration costs along with the use of an accountant for a year the third group was assigned to receive an enforcement visit from a municipal inspector while the fourth group was assigned to have a neighboring firm receive an enforcement visit to see if enforcement has spillovers the analysis finds zero or negative impacts of information and free cost treatments and a significant but small increase in formalization from inspections estimates of the impact of actually receiving an inspection give a 21 to 27 percentage point increase in the likelihood of formalizing the results show most informal firms will not formalize unless forced to do so suggesting formality offers little private benefit to them but the tax revenue benefits to the government of bringing firms of this size into the formal system more than offset the costs of inspections

firm dynamics and institutional participation a case study on informality of micro enterprises in peru abstract using panel data on micro enterprises from peru we find evidence suggesting that firm dynamics explain formality where formality is recast as the firm s decision to participate in societal institutions the results suggest that differences in unobservable factors such as entrepreneurial ability contribute largely to differences in growth rates survival chances and societal participation after controlling for such unobserved heterogeneity we find that the probability of participation increases with firm size but not with years in business changes in participation status are sensitive to the initial size and growth trajectory of the firm

the informal sector and the political economy of development this paper takes an initial step in integrating insights from two sets of literature which have focused on central aspects of development with unfortunate independence it highlights politically valuable resources which are identified in the political economy literature and shows that the informal sector literature provides ample evidence that these resources in general are i scarcely available to informal entities ii poorly valued in their possession and iii more often collectively unexploited by them overall there seems to be an important though neglected bias in how the political system in less developed countries formulates crafts and implements policy

a multiplier decomposition method to analyze poverty alleviation abstract the objective of this paper is to present a multiplier decomposition method focusing on poverty alleviation the decomposition captures the various mechanisms and linkages through which a production sector s output contributes to poverty alleviation within a socioeconomic system represented by a social accounting matrix sam it is shown that a multiplier can be broken down into two multiplicative effects the distributional and interdependency effects the decomposition method is applied to the case of indonesia a key policy implication is that the human capital of the poor needs to be enhanced if they are not to be sealed off from the industrialization process

growth of firms in developing countries evidence from cote d ivoire the paper presents evidence in support of a particular growth process of firms that is consistent with a missing middle in the size distribution of manufacturing firms in african countries firm growth is explained by size and age effects as a result of efficiency exploiting through scale enlargements and learning but is strongly moderated by reputation effects and formal legitimation which facilitate access to output markets and resources complementing the model with data on growth obstacles as perceived by the owners of firms medium sized firms are found to be strongly hurt by insufficient access to infrastructure and financial services

technology diffusion and the rate of technical change the way in which the process of technical change is formulated at the macroeconomic level implies generally speaking immediate diffusion or adoption of new technologies whether primarily disembodied in nature accounting for any shift in the production function as in the early technology index formulations or embodied in new investment as in the subsequent vintage growth models technical progress will be identified with advances in inventiveness or best practice technologies at first this might well seem the most appropriate way to separate out the contribution of the technology production factor from the other production factors from a straightforward economic point of view though advances in technology or best practice productivity levels are only relevant to the extent that they have been translated in actual achieved productivity levels the issue is a well known one in most empirical research on the measurement of the contribution of technical change to economic growth and has received much attention in the recent productivity slowdown debate denison i 979 griliches i980 nordhaus i980 and i 98i in particular there it was generally agreed that other technology factors including a slowdown in the rate of the spread of technology to use kendrick s i 98i term were more important than the actual decline in r d expenditure in contributing to the overall slowdown in productivity the importance of the diffusion of innovation rather than the mere occurrence of innovations is of course the major factor underlying most of the microeconomic diffusion literature the fundamental reasons for delay in adopting the so called retardation factors have been found to relate both to uncertainty and lack of information about the new technology and the often proprietary nature of the new technology since griliches i957 and mansfield s i96i seminal papers most of this literature has focused on the theoretical arguments underlying the traditional s shaped epidemic diffusion curve in more recent research particularly the mechanical static nature of these diffusion models has been questioned and various alternative diffusion models suggested including dynamic supply models metcalfe 1981 i982 stoneman i983 in which both the economic characteristics of the innovation and its diffusion environment have been made endogenous to the diffusion process these latter models in particular allow for an interpretation of the diffusion of technology in a broader macroeconomic growth and structural change perspective

technology as a complex adaptive system evidence from patent data this paper develops a theory of invention by drawing on complex adaptive systems theory we see invention as a process of recombinant search over technology landscapes this framing suggests that inventors might face a complexity catastrophe when they attempt to combine highly interdependent technologies our empirical analysis of patent citation rates supports this expectation our results also suggest however that the process of invention differs in important ways from biological evolution we discuss the implications of these findings for research on technological evolution industrial change and technology strategy 2001 elsevier science b v all rights reserved

the impact of research led agricultural productivity growth on poverty reduction in africa asia and latin america abstract twenty percent of the world s population or 1 2 billion live on less than 1 per day 70 of these are rural and 90 are in asia and sub saharan africa research led technological change in agriculture generates sufficient productivity growth to give high rates of return in africa and asia and has a substantial impact on poverty currently reducing this number by 27 million per annum whereas productivity growth in industry and services has no impact the per capita cost of poverty reduction by means of agricultural research expenditures in africa is 144 and in asia 180 or 50 cents per day but this is covered by output growth by contrast the per capita cost for the richer countries of latin america is over 11 000

informal firms in developing countries entrepreneurial stepping stone or consolation prize the potential dynamic benefits of a firm having the option to adopt informal status are analysed informality may be a stepping stone without which formality may never be achieved this result is obtained for a broad range of realistic parameter values suggesting a potential dynamic case for government support of informal firms informality may alternatively play a converse role as a consolation prize with a firm only entering an industry formally because it recognizes that if profitability is disappointing it can switch to informality however this result is obtained for a range of parameter values so narrow as to be of no practical significance

job search and mobility in developing countries theory and policy implications abstract a labor market model is developed in which the formal sector is characterized by search frictions whereas the informal sector is competitive we show that there exists a unique steady state equilibrium in this dual economy we then consider different policies financed by a tax on firms profits we find that reducing the unemployment benefit or the firms entry cost in the formal sector induces higher job creation and formal employment reduces the size of the informal sector but has an ambiguous effect on wages we also find that an employment wage subsidy policy and a hiring subsidy policy have different implications in particular the former increases the size of the informal sector while the latter decreases it

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

tax rates governance and the informal economy in high income countries i introduction informal economic activity was long thought to be a feature of developing countries formalization of business was supposed to go hand in hand with economic development however even among high income countries a large part of economic activity is informal according to schneider 2002 16 7 of gross domestic product gdp in high income oecd organisation for economic cooperation and development countries was informally produced in 2001 2002 the author defines the informal economy as all economic activities which would generally be taxable were they reported to the state tax authorities p 4 in this sense both the informal economy and tax evasion are measures of the same phenomenon while tax evasion refers to the amount of forgone tax revenues the term informal economy encompasses the amount of production that escapes taxation 1 schneider s 2002 estimates of the informal economy of 21 high income oecd countries are reproduced in figure 1 2 these numbers have been obtained by the so called currency demand approach which estimates currency demand as a function of interest rate per capita income proportion of wages and salaries in aggregate output and tax rates excess demand of currency caused by a rise in tax rates is attributed to an increase in the informal economy 3 thus while the currency demand approach establishes a relationship between increasing tax rates and increasing informality within a country it does not imply any built in relationship between tax rates and the size of the informal economy across countries figure 1 omitted numbers in figure 1 show that there are large differences in the size of the informal economy even across high income countries in greece the informal economy amounted to 28 5 of gdp while in the united states the estimate was 8 7 4 put differently the production of legal final goods and services worth 892 billion about 3 090 per capita went untaxed in the united states while in greece 49 billion about 4 380 per capita escaped taxation given these large differences in the size of the informal economy even across high income countries the following two questions arise what are the driving forces behind informal economic activity in high income countries and to what extent can differences in these driving forces account for cross country differences in informality a paper by davis and henrekson 2005 suggests a natural answer to the first question across 14 high income oecd countries the authors find a positive and significant relationship between tax rates and the size of the informal economy figure 2 replicates their results and shows the relationship between tax rates on income and consumption and social security contributions and the size of the informal economy however despite a positive relationship between tax rates and informality countries with equally high tax rates have strikingly different estimates of their informal economies in 1995 1996 spain and the netherlands had similar total tax rates on income and consumption and social security contributions of around 67 the netherlands informal economy was estimated to amount to 13 7 of gdp while the estimate for spain was 22 4 apart from tax rates additional forces seem to drive informality in high income countries low institutional quality and corruption are possible suspects their close relationship to the size of the informal economy has been highlighted by various empirical studies friedman et al 2000 chong and gradstein 2007 and johnson kaufmann and zoido lobaton 1998 all find a positive relationship between low institutional quality a large regulatory burden corruption and the size of the informal economy the relationship between institutional quality and informality also holds across the sample of 21 high income countries figure 3 shows the negative relationship between the size of the informal economy and the commonly used world bank governance indicators on government effectiveness regulatory quality rule of law and control of corruption

opening the pandora s box trade openness and informal sector growth this article constructs a labour transition model combining the features of job loss and job creation in the formal sector of an economy the theoretical model examines the impact of trade liberalization on net job transition from formal to informal sector in the light of our model we establish certain pre conditions based on simulations under which trade liberalization is accompanied by rising informal sector the model outcome conforms to the empirical evidence of rising informality with openness which we find in 18 central eastern european and former soviet union countries

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

legitimacy and the benefits of firm formalization entrepreneurs in many emerging economies start their firms informally without registering with the state we examine how informality at the time of founding affected the performance of 12 146 firms in 18 countries across sub saharan africa our findings indicate that entrepreneurs who registered their firms at founding enjoyed greater success in terms of sales and employment but these benefits varied widely across countries consistent with the idea that legitimation processes account for these benefits countries in which people trust their government more had larger advantages associated with being formal

optimal policies with an informal sector abstract this paper characterizes optimal policies in the presence of tax evasion and undocumented workers in equilibrium domestic workers may work exclusively in the formal sector or also in the informal sector surprisingly in equilibrium wages are always equalized between domestic and undocumented workers even if they do not work in the same sectors of the economy this is driven by the interaction of firm level decisions with optimal government policy we also find that enforcement may not always be decreasing in its cost and that governments will optimally enforce labour market segmentation if enforcement costs are not too high

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

can cities or towns drive african development economy wide analysis for ethiopia and uganda rapid urbanization is an important characteristic of african development and yet the structural transformation debate focuses on agriculture s relative merits without also considering the benefits from urban agglomeration as a result african governments are often provided conflicting recommendations on the importance of rural agriculture or urban industry we develop dynamic economy wide models for ethiopia and uganda that capture both traditional aspects of the debate growth linkages and foreign trade and benefits from urbanization internal migration and agglomeration effects simulations suggest that urban agglomeration is an important source of long term growth and structural transformation but that investing in cities does not greatly reduce national poverty over the short term in this regard agricultural growth is more effective albeit with slower national growth given these trade offs we conclude that

can informal firms hurt registered smes access to credit using firm level survey responses from 2009 to 2012 we examine whether competitors from the informal sector affect the credit constraints of registered smes in 86 countries worldwide we also investigate the role played by the quality of institutional environment in exacerbating or in alleviating such effect a weak quality of institutional environment strengthens inter linkages between the formal and the informal sectors increases the costs and decreases the benefits assumed by formal firms and reduces the costs attributed to informality moreover it also results in a large informal economy which influences perceptions about the substitutability between formal and informal goods and law evasion our findings indicate that registered smes facing competition from informal firms are more likely to be credit constrained than other formal smes that are not confronted with such competition this result is consistent with the parasite view and the entrepreneurial perspective of informality which assert that informal firms are capable of competing against registered smes and hurting the latter s profits further we find that such adverse impact manifests only in countries with weak rule of law and high degree of corruption and bureaucracy our results also show that registered micro and small firms are more likely to be affected by the presence of informal firm competitors than medium sized firms this is because the benefits of formality that include access to credit from financial institutions increase with firm size on the whole our findings suggest that governments must enhance their role in increasing access to credit to smaller firms and in providing incentives for informal firms to be integrated in the formal economy moreover in order to achieve inclusive growth our results highlight the importance of improving the business environment which affects all entrepreneurs

labor market integration in urban ethiopia 1994 2004 abstractan analysis of panel data on individuals in a random selection of urban households in ethiopia reveals large sustained and unexplained earnings gaps between public and private and formal and informal sectors over 1994 2004 at the same time we find first that the rate of mobility increased in the two pairs of sectors sample transitions rates grew across survey waves while state dependence in sector choice decreased second the correlation between sector choice and earnings gaps increased over the same period in particular the correlation between comparative earnings and selection into the informal sector was high throughout the survey decade and increased in magnitude over the second half of the period these results suggest that ethiopia s urban labor markets might be integrating

economic development urban underemployment and income inequality the evolution of income inequality during the course of economic development is investigated the source of inequality is market luck in obtaining employment in the protected urban formal sector versus employment in the unprotected urban informal sector it is shown that with development inequality tends to follow an inverted u it rises when urbanization is low and consequent pressure on the land keeps rural incomes low making agents willing to incur high risks of underemployment in the urban informal sector it eventually falls after urbanization and consequently rural incomes have increased sufficiently to allow agents to make better than even bets in the urban industrial sector

the impact of a social program on labor informality the case of auh in argentina abstract the recent universal child allowance program in argentina provides monthly cash transfers to unregistered workers with children as the program is accessible only to those who are not in formal employment it may discourage workers transitions to the formal sector in this paper we estimate this effect by comparing the transitions to registered jobs of eligible workers with children with a similar but not eligible group without children over time the results suggest a statistically significant and economically large disincentive to the labor market formalization of the program beneficiaries in contrast there is no sufficient evidence for the existence of a significant incentive for registered workers to become informal

towards a theory of the technology based firm abstract the modern firm is a very viable economic institution drawing strength from a competitive market economy with embedded super markets for corporate control and sub markets for internal organization the technology based firm in addition draws strength from its co evolution with modern science and technology and vice versa and thereby becomes increasingly important however received theories of the firm of which there are many have not particularly taken account of technology and technology based firms nor their management this paper takes an empirical point of departure from recent findings regarding the positive relationship between technology diversification on the one hand and corporate growth and business diversification on the other these findings are not readily explainable by received theories of the firm which the paper reviews and the findings are thus taken as an explanandum for a proposed approach to formulate a theory of the technology based firm the approach is compatible with various other theoretical approaches such as the resource based the transaction cost and the evolutionary approach but specifically takes the idiosyncrasies of technology i e technical competence as well as management into account through notably strong economies of scale scope speed and space associated with the combination of different technologies and resources the technology based firm is subjected to specific dynamics in its growth and diversification and shifts of businesses and resources in particular a technology based firm tends to engage in technology diversification thereby becoming multitechnological as such the technology based firm has incentives to economize on increasingly expensive new technologies by pursuing strategies of internationalization on both input and output markets technology related business diversification external technology marketing and sourcing r d rationalization and technology related partnering

informal employment in a growing and globalizing low income country abstract we document several facts about workforce transitions from the informal to the formal sector in vietnam a fast growing industrializing and low income country first younger workers particularly migrants are more likely to work in the formal sector and stay there permanently second the decline in the aggregate share of informal employment occurs through changes between and within birth cohorts third younger educated male and urban workers are more likely to switch to the formal sector than other workers initially in the informal sector poorly educated older female rural workers face little prospect of formalization fourth formalization coincides with occupational upgrading

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

options for african agriculture in an era of high food and energy prices in a world of high food and energy prices africa has an imperative to do a better job feeding itself and ensuring that its people are food secure at the same time there is a new business opportunity to work with the private sector in developing the continent s potential to produce significantly more food raw materials and biofuels for regional and world markets a challenge for african policy makers is to find the right balance between a food security and a business agenda and to ensure that the business agenda engages with large numbers of small farms agricultural development requires many things but the fundamentals for africa are developing markets increasing agricultural productivity and managing volatility this cannot happen at sufficient scale and speed without strong public sector leadership enabling policies and investments and well focused implementation strategies

genetic algorithm learning and the cobweb model this paper presents the cobweb model in which competitive firms in a market for a single good use a genetic algorithm to update their decision rules about next period production and sales the results of simulations show that the genetic algorithm converges to the rational expectations equilibrium for a wider range of parameter values than other algorithms frequently studied within the context of the cobweb model price and quantity patterns generated by the genetic algorithm are also compared to the data of experimental cobweb economies it is shown that the algorithm can capture several features of the experimental behavior of human subjects better than three other learning algorithms that are considered

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

schumpeterian dynamics an evolutionary model of innovation and imitation abstract this paper develops a simple evolutionary model of innovation and imitation it analyzes how dynamic interactions between equilibrating force of imitation and disequilibrating force of innovation mold the evolutionary pattern of an industry s state of technology and shows that in this schumpeterian world the industry will never approach a neoclassical equilibrium with perfect knowlwdge even in the long run the paper also examines the steady state efficiency distribution of firms that characterizes the industry s long run and obtains some comparative dynamics results

contractual dualism market power and informality we develop a search theoretic model of contractual dualism in formal and informal labour markets the model i provides the micro underpinnings for endogenous determination of employer market power in the formal and informal sectors ii offers a unified and coherent set up whereby a host of salient features of developing country labour markets can be explained together and iii places for the first time the stiglerian prescription of the optimal unemployment minimising minimum wage in the broader context of labour markets where formal job creation is costly where employer market power is endogenous and where formal employment informal employment and unemployment coexist

measuring changes in poverty a methodological case study of indonesia during an adjustment period analysis of the effects of policy changes on the poor is often hindered by the difficulties inherent in measuring poverty and comparing levels of poverty before and after policy changes this article outlines two techniques which can overcome many of these measurement problems stochastic dominance conditions which can facilitate a robust poverty ranking of distributions of living standards and a decomposable poverty index which allows measured changes in aggregate poverty to be disaggregated into their various components such as the changes among population subgroups and growth and redistributive components these techniques can be applied to a wide range of indicators of economic well being and poverty lines and to assumptions about the poor the approaches are illustrated using household survey data from indonesia before and after external shocks and the subsequent structural adjustment program in the mid 1980s the study finds that favorable initial conditions and pro poor pattern of growth enabled indonesia to maintain its momentum in poverty alleviation during the period

informal sector the credit market channel abstract we build a model of firms choice between formality and informality complying with costly registration procedures allows the firms to benefit from key public goods enforcement of property rights and contracts that make the participation in the formal credit market possible in a moral hazard framework with credit rationing their decision is shaped by the interaction between the cost of entry into formality and the relative efficiency of formal versus informal credit mechanisms and their related institutional arrangements the model is consistent with existing stylized facts on the determinants of informality

beyond replicator dynamics innovation selection dynamics and optimal diversity we propose a new evolutionary approach to model technological change based on an extension of replicator dynamics with recombination and mutation it gives rise to interactive innovation selection dynamics the model allows studying the combined effects of selection and variety generation on evolutionary economic change the developed framework describes a population of boundedly rational entrepreneurs who decide each period on the allocation of investments in different production technologies they tend to invest in belowaverage cost technologies just as under replicator dynamics in addition they spend a constant fraction of investments captured by mutation and recombination rates on alternative technologies and research on recombinant innovation as opposed to most previous studies mutation and recombination are here conceptual variables with a concrete behavioral interpretation namely describing the decision rules heuristics of investors we compare the dynamics of shares of investments in various technologies for three cases with constant costs of capital with costs decreasing steadily and exogenously over time and with costs depending on the level of cumulative investments for each model version we examine under which conditions the coexistence of technological options is feasible and optimal in terms of minimising the average cost of investments authors abstract

optimal diversity increasing returns versus recombinant innovation abstract choices regarding diversity play an important role in economics and innovation management but often remain implicit once made explicit the objectives of efficiency and diversity are usually posed as in conflict as efficiency relates positively and diversity negatively to various increasing returns to scale in markets such a perspective however neglects the benefits of diversity in terms of realizing system improvements through recombinant innovation or spillovers the latter implies a contribution of diversity to long term efficiency dominant economic approaches that address diversity such as option value and real options theories regard benefits of diversity as exogenous this paper proposes a simple model of variable endogenous diversity to analyse the optimal balance between increasing returns to scale and recombinant innovation it is discussed under which conditions one of four solutions is optimal complete specialization regardless of which option complete specialization in one specific option symmetric diversity perfect balance and asymmetric diversity the results give rise to a number of policy insights

the effects of location and sectoral components of economic growth on poverty evidence from indonesia abstract in this paper we investigate the relationship between economic growth and poverty reduction by differentiating growth and poverty into their sectoral composition and urban rural location using data from indonesia we find that rural services growth reduces poverty in all sectors and locations however urban services growth has the largest effect on poverty in most sectors finally we also find that rural agriculture growth strongly reduces poverty in rural areas the largest contributor to poverty in indonesia this implies that while agriculture growth in rural areas still plays a major role in reducing poverty policies that enable strong growth in the services sector in both urban and rural areas would expedite poverty reduction

the future of small farms trajectories and policy priorities summary while smallholder development has in the past led to reductions in poverty and hunger does this still apply in today s more globalized world this paper reviews the debates on the contemporary role of agriculture in development and the case for small farms in light of the rise of supermarkets lower commodity prices and liberalized trade agricultural research funding environmental change hiv aids and changing policy ideas although the answers vary greatly by context for many low income countries smallholder development remains a key option the policy agenda however has changed in addition to providing public goods the growing challenge is to overcome market failures which is largely a matter of institutional innovation

opec the seven sisters and oil market dominance an evolutionary game theory and agent based modeling approach abstract a methodological toolkit comprised of evolutionary game theory and agent based modeling is used to study opec and the seven sisters as they struggled for control over global petroleum markets during the 1960s and 1970s an evolutionary game theory model incorporates heterogeneous populations energy specific variables and behavioral considerations to capture the fundamentals of the applied problem an agent based model is used to provide detailed results and demonstrate the importance of the natural resource to the outcome of the model

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

on the job search in a labor market model ex ante choices and ex post outcomes abstract this paper builds a multi sector labor market model including wage dualism open unemployment underemployment on the job search and expected wage equalization the innovative feature of this model is the distinction between the ex ante allocation of the labor force among search strategies and the ex post allocation of the labor force among labor market outcomes among the findings are more efficient on the job search lowers the equilibrium unemployment rate in a rational expectations equilibrium the average rural and urban wages will not be equal modern sector enlargement may leave labor market conditions in one of the sectors unchanged even when wages and employment in that sector are fully flexible

technical efficiency market share and profitability of manufacturing firms in cote d ivoire the technology trap this paper investigates the sources of inefficiency of firms in cote d ivoire and exam ines to what extent these effects translate into poor performance a large majority of firms is technically inefficient producing far below the maximum attainable output level major cost savings can also be realised through enlarging the scale of activities of firms efficiency gains and scale advantages translate into a better competitive position and via their impact on market share into higher profitability however severe growth barriers and imperfect markets keep firms from realising these gains and prevent firms from catching up in technology with respect to their larger older and often foreign owned competitors

explaining the evolution of poverty the case of mozambique we provide a comprehensive approach for analyzing the evolution of poverty using mozambique as a case study bringing together data from disparate sources we develop a novel back casting framework that links a dynamic computable general equilibrium model to a micro simulation poverty module this framework provides a new approach to explaining and decomposing the evolution of poverty as well as to examining rigorously the coherence between poverty economic growth and inequality outcomes finally various simple but useful and rarely applied approaches to considering regional changes in poverty rates are presented copyright 2012 oxford university press

the formal sector wage premium and firm size abstract we show theoretically that when larger firms pay higher wages and are more likely to be caught defaulting on labor taxes then large high wage firms will be in the formal and small low wage firms will be in the informal sector the formal sector wage premium is thus just a firm size wage differential using data from ecuador we illustrate that firm size is indeed the key variable determining whether a formal sector premium exists

sectoral growth and poverty alleviation a multiplier decomposition technique applied to south africa abstract how does an increase in a sector s output affect poverty alleviation in this paper a multiplier decomposition for a socioeconomic system represented by a social accounting matrix sam is used to study this linkage the decomposition applied to south africa reveals that growth in agriculture services and some manufacturing sectors can alleviate poverty for the black african population for sectoral growth to be effective however the need for appropriate skill acquisition for the poor must be addressed directly only long term policies geared towards improving both economic growth and the human capital stock of the poor can lead to significant poverty alleviation

formal but less equal gender wage gaps in formal and informal jobs in urban brazil in developing countries a large share of employees work informally and are not covered by employment protection legislation i study here how gender wage inequality differs across formal and informal jobs in brazil the raw gender wage gap is higher in informal jobs 13 compared to formal jobs 5 but i show that this difference is an artefact of different male and female selection processes first women have better observable characteristics than men and the female advantage is stronger among formal employees second men and women entering formal and informal jobs have different unobservable characteristics controlling for endogenous selection into formal vs informal jobs i find that the gender gap in wage offers is high and increases with education in formal jobs in informal jobs however estimated wage offers are the same for men and women i discuss the potential implications of these findings regarding the effect of labour market regulation on gender wage gaps

are labor markets segmented in developing countries a semiparametric approach abstract we test the hypothesis that observably similar workers earn higher wages in the formal sector than in the informal sector in developing nations using data from argentina s household survey and various definitions of informal employment we find that on average formal wages are higher than informal wages parametric tests suggest that a formal premium remains after controlling for individual and establishment characteristics however this approach suffers from several econometric problems which we address with semiparametric methods the resulting formal premium estimates prove either small and insignificant or negative neither do we find significant differences in measures of job satisfaction between the two sectors we invoke these results to question the mainstream view that labor markets are segmented along formal informal lines in developing nations such as argentina

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

the composition of growth matters for poverty alleviation this paper contributes to explain the cross country heterogeneity of the poverty response to changes in economic growth it does so by focusing on the structure of output growth the paper presents a two sector theoretical model that clarifies the mechanism through which the sectoral composition of growth and associated labor intensity can affect workers wages and thus poverty alleviation then it presents cross country empirical evidence that analyzes first the differential poverty reducing impact of sectoral growth at various levels of disaggregation and the role of unskilled labor intensity in such differential impact the paper finds evidence that not only the size of economic growth but also its composition matters for poverty alleviation with the largest contributions from labor intensive sectors such as agriculture construction and manufacturing the results are robust to the influence of outliers alternative explanations and various poverty measures

genetic algorithms and inflationary economies abstract this paper studies overlapping generations economies in which agents use genetic algorithms to learn correct decision rules the results of computer simulations show that a genetic algorithm converges to the unique monetary steady state in case of a constant money supply policy and to the low inflation stationary equilibrium in case of a constant real deficit financed through seignorage features of the genetic algorithm adaptation are compared to the performance of other learning algorithms and to the behavior observed in experiments with human subjects in the same olg environments

does globalisation affect the shadow economy we investigate the impact of globalisation on the shadow economy using panel data for 119 countries our evidence suggests that globalisation matters in mitigating shadow development more specifically we find that political globalisation reduces the shadow economy whereas economic and social globalisations have limited statistical support after controlling for important factors that affect the size of the shadow economy overall these results are robust after accounting for an alternative measure of the shadow economy outliers endogeneity and alternative model specifications

lyapunov stability in an evolutionary game theory model of the labour market in this paper the existence and stability of equilibria in an evolutionary game theory model of the labor market is studied by using the lyapunov method the model display multiple equilibria and it is shown that the nash equilibria of the static game are evolutionary stable equilibria in the game theory evolutionary set up in this vein a complete characterization of the dynamics of an evolutionary model of the labor market is provided

the economics of convention c onventions regulate much of economic and social life yet they have received surprisingly little attention from economists by a convention we mean a pattern of behavior that is customary expected and self enforcing everyone conforms everyone expects others to conform and everyone has good reason to conform because conforming is in each person s best interest when everyone else plans to conform lewis 1969 familiar examples include following rules of the road adhering to conventional codes of dress and using words with their conventional meanings conventions with direct economic implications include species of money and credit industrial and technological standards accounting rules and forms of economic contracts indeed it would scarcely be an exaggeration to say that almost all economic and social institutions are governed to some extent by convention the main feature of a convention is that out of a host of conceivable choices only one is actually used this fact also explains why conventions are needed they resolve problems of indeterminacy in interactions that have multiple equilibria indeed from a formal point of view we may define a convention as an equilibrium that everyone expects in interactions that have more than one equilibrium the economic significance of conventions is that they reduce transaction costs imagine the inconvenience if whenever two vehicles approached one another the important exceptions are sugden 1986 and ullman margalit 1977 the interested reader might also refer to the symposium on social norms that appeared in the fall 1989 issue of this journal with articles by sugden 1989 and elster 1989

schumpeterian dynamics part ii technological progress firm growth and economic selection abstract business firms strive for survival and growth they innovate in order to grow they imitate in order to survive the purpose of this paper the second in the series on schumpeterian dynamics is to construct a simple mathematical model which is capable of studying the evolution of an industry s state of technology as a dynamic outcome of the interactions among innovation imitation and capacity growth at the micro level of firms the doctrine of economic selection insists by means of the analogy to the biological theory of natural selection that only the most efficient firms will survive the long run competitive struggle for capacity growth indeed if neither innovation nor imitation is possible for the firm a firm or a group of firms which is lucky enough to start with the most efficient technology will outgrow all the other firms in the long run once however the possibility of technological imitation is allowed for the firms the industry will settle down to a static equilibrium of perfect technological knowledge not by the success of the most efficient firms in their striving for the higher growth rate but by the success of the less efficient in their effort to imitate the others the blind force of economic selection is thus outwitted by the human force of imitative activities finally when firms are allowed to innovate in their technology the selective force of market competition is no longer capable of weeding out the less fit even in the long run indeed it is shown in the present paper that the dynamic interplay of the processes of innovation imitation and growth will keep the industry s state of technology from settling down to the static equilibrium but reproduce in the long run a relative dispersion of efficiencies across firms in a statistically balanced form

informality in the process of development and growth informality is a term used to describe the collection of firms workers and activities that operate outside the legal and regulatory systems it is widespread in the majority of developing countries in a typical developing economy the informal sector produces about 35 per cent of gdp and employs 70 per cent of the labour force this paper studies informality in the context of economic development by presenting a model and projections that link informality regulations migration and economic growth this analytical framework highlights the trade offs between formality and informality the relationship between the different types of informality and the connection between them and the forces of labour capital and productivity growth the paper models the behaviour of the informal sector based on the following fundamental asymmetry formal firms confront higher labour costs while informal firms face higher capital costs and lower productivity using mandated minimum wages as the policy induced distortion the model first studies the static allocation of formal and informal capital and labour in a modern economy second it opens the possibility of labour migration from a rudimentary economy with ample supply of labour e g rural areas or less advanced neighbouring countries third the model analyses the dynamic behaviour of the formal and informal sectors considering how they affect and are affected by economic growth and labour migration then the paper presents projections for the size of labour informality in the modern and rudimentary economies in the next two decades for a large group of countries representing all regions of the world the projections are based on the calibration and simulation of the model and serve to discuss its usefulness and limitations

the evolving role of agriculture in poverty reduction an empirical perspective abstract the role of agriculture in development remains much debated this paper takes an empirical perspective and focuses on poverty as opposed to growth alone the contribution of a sector to poverty reduction is shown to depend on its own growth performance its indirect impact on growth in other sectors the extent to which poor people participate in the sector and the size of the sector in the overall economy bringing together these different effects using cross country econometric evidence indicates that agriculture is significantly more effective in reducing poverty among the poorest of the poor as reflected in the 1 day squared poverty gap it is also up to 3 2 times better at reducing 1 day headcount poverty in low income and resource rich countries including those in sub saharan africa at least when societies are not fundamentally unequal however when it comes to the better off poor reflected in the 2 day measure non agriculture has the edge these results are driven by the much larger participation of poorer households in growth from agriculture and the lower poverty reducing effect of non agriculture in the presence of extractive industries

drilling like there s no tomorrow bankruptcy insurance and environmental risk this paper measures the effects of bankruptcy protection on industry structure and environmental outcomes in oil and gas extraction using administrative data from texas i exploit variation in an insurance requirement that reduced firms ability to avoid liability through bankruptcy among small firms the policy substantially improved environmental outcomes and reduced production most production was reallocated to larger firms with better environmental records but high cost production where social cost may have exceeded social benefit decreased these results suggest that incomplete internalization of environmental costs due to bankruptcy is an important determinant of industry structure and safety effort in hazardous industries

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

institutions and concentration abstract in a new dataset of 1 3 million firms from over 100 countries i establish a number of regularities in cross country differences in economic concentration concentration of sales and employment is substantially higher in smaller countries and in less developed countries these two factors alone explain roughly half the cross country variation in concentration nevertheless a number of institutional factors offer additional explanatory power for concentration concentration is higher in countries with higher entry costs for new firms in countries with weaker antitrust policy in countries with less financial development in countries with weaker rule of law and in countries with more burdensome regulation weak institutions are associated with higher concentration especially in industries that do not have naturally high levels of concentration in addition the relationships between institutions and concentration are more pronounced in nontradable and investment intensive industries suggesting that natural barriers to competition facilitate the monopolization of sectors especially when institutions are weak

informality in developing economies regulation and fiscal policies abstract this paper proposes a unified theoretical framework where formal and informal firms coexist and face the same type of product and labor market imperfections they have monopoly power in the goods market they are subject to matching frictions in the labor market and wages are determined by bargaining between large firms and their workers through either individual or collective bargaining our model matches the main stylized facts on informality for developing countries and appears to be a good candidate for policy analysis in this framework we study the impact on informality wages and unemployment of policies that may be used to reduce informality we consider changes in product market regulation pmr and in two types of fiscal policies labor taxes and formality enforcement we find that lessening pmr decreases informality and unemployment simultaneously indicating that there is not necessarily a tradeoff between informality and unemployment the tradeoff appears when fiscal policies are used though moreover the impacts of pmr on unemployment and on wages are larger under collective than individual bargaining with respect to wage inequality lessening pmr reduces it while lower taxes tend to increase the formal sector wage premium

trade informal employment and labor adjustment costs informal employment is ubiquitous in developing countries but few studies have estimated workers switching costs between informal and formal employment this paper builds on the empirical literature grounded in discrete choice models to estimate these costs the results suggest that inter industry labor mobility costs are large but entry costs into informal employment are significantly lower than the costs of entry in formal employment simulations of labor market adjustments caused by a trade related fall in manufacturing goods prices indicate that the share of informally employed workers rises after liberalization but this is due to entry into the labor market by previously idle labor

the missing missing middle the notion that the distribution of firm size in poor countries is characterized by a bimodal distribution with a missing middle is a widely accepted fact in development economics for example see krueger 2013 the idea of the missing middle is that there are a large number of small firms some large firms but very few medium sized firms the purported fact about the missing middle is cited as evidence for two broad stories of why many countries are poor perhaps surprisingly these models look for the cause of the missing middle in two fundamentally different places one approach suggests that small firms are disfavored in low income countries for example by a lack of access to financial capital and thus face difficulties in growing to become middle sized firms the other approach posits a dual economy of large high productivity firms and small low productivity firms and then suggests that larger firms are disfavored in low income countries for example by having to bear large fixed costs of regulation which make it difficult for middle sized firms to become established we begin by reviewing these theories of development based on the purported fact of a missing middle we then explore the evidence on distribution of firm sizes in more detail and challenge the presumption that a missing middle occurs at all we present three main facts first there is in fact no evidence of a missing middle in detailed and comprehensive data on the size of manufacturing firms in india indonesia or mexico regardless of how we slice the data to be sure there

lurking in the shadows the informal sector and government policy abstract this paper develops a dynamic model that sheds light on the evolution of the informal sector we show how tax rates and enforcement policies influence the size of this sector and how the sector naturally declines as an economy transitions towards steady state we find small changes in the tax rate cause measurable changes in the size of informal employment but modest changes in enforcement have negligible effects these results suggest that while reductions in the tax rate combined with increased enforcement reduce the size of the informal sector tax rate reductions and penalties for evasion are the most effective

an idea in good currency and how it grew the informal sector abstract the informal sector is an exceedingly fuzzy concept which has come into wide use because it seemed to address the interests of a number of very diverse groups those interested in growth planning those interested in alleviating poverty marxist structuralists and those interested in economic accounting the use of the concept has been helpful in directing attention to phenomena previously ignored but adopting the term obscures analysis of central issues and is counterproductive we should rather specify critical policy issues and design field research around these

beyond agriculture versus non agriculture decomposing sectoral growth poverty linkages in five african countries summary africa s development debate is often cast as agriculture versus non agriculture with agriculture s proponents arguing that agricultural growth is more effective at reducing poverty this dual economy perspective overlooks the heterogeneity within and synergies between these two broad sectors recent studies decompose agriculture into subsectors and find that agricultural growth led by smallholder farmers is even more effective at reducing poverty than larger scale estate farms in contrast few studies estimate subsectoral growth poverty linkages for non agriculture yet we strongly expect for example that growth led by informal traders or foreign owned mining companies will have quite different implications for poverty reduction different perspectives on what constitutes non agriculture might therefore explain divergent views on its relative importance for poverty reduction to address this gap in our understanding we estimate sectoral poverty growth elasticities using economy wide models for five african countries while our estimated elasticities are higher for agriculture than for non agriculture as a whole the extent to which this is true varies considerably across nonagricultural subsectors and across countries we find that the poverty growth elasticities for trade and transport services and manufacturing especially agro processing are often close to and sometimes exceed agriculture s this means that growth led by these nonagricultural subsectors might be as effective as agriculture at reaching the poor this confirms the need for a more nuanced treatment of non agriculture in africa s policy debate and may explain conflicting perspectives on agriculture s role vis a vis non agriculture

informal labor markets and on the job training evidence from wage data i introduction this study explores the role of informal jobs in the formation of human capital among young less educated workers an informal job is a job that fails to comply with some or all of the labor regulations 1 the set of all informal jobs constitute what is typically known as the informal sector due to the lack of compliance with the labor laws informal jobs are not registered with the authorities 2 however it is often argued that compliance with these laws is of great significance in developing countries to ensure social justice for workers berg and kucera 2008 and to protect them against the forces of reallocation in the labor market inter american development bank 2003 in spite of these arguments the lack of compliance with these mandates in developing countries is common practice leading to the existence of sizable informal labor markets especially among the youth and the less educated 3 hence the importance of understanding what role the informal sector is playing in the lives of young less educated workers the traditional views of the informal sector in the literature are that of a sector that is the last resort for many workers who are rationed out of the protected and better paid jobs in the formal sector e g ozorio de almeida et al 1995 or that it is the disadvantaged sector in a segmented labor market e g fields 1975 harris and todaro 1970 4 the support for these views of the informal sector is mixed in the literature the work of maloney 1999 amaral and quintin 2006 and galiani and weinschelbaum 2012 suggests that the existence of informal labor markets is not necessarily evidence of segmentation and that could be an equilibrium outcome in a competitive labor market however the work of arias and khamis 2008 presents some evidence that is consistent with the rationing of formal salaried jobs and with segmentation in the labor market 5 despite the ongoing debate informal jobs play an important role in the work lives of less educated workers maloney 1999 argues that informal salaried jobs serve as the main point of entry for young poorly educated workers into paid employment the current study further explores this idea focusing on the group of young less educated workers in mexico the study explores the extent to which less educated workers in the informal sector experience wage growth and how wage growth in the informal sector compares with wage growth in the formal sector the basic question is whether informal jobs offer wage growth and skill accumulation to less educated workers and how it compares with formal jobs the empirical analysis uses a household survey from mexico the enoe acronym in spanish for encuesta nacional de ocupacion y empleo the panel structure of the survey allows the construction of measures of wage growth and continuing sector participation the results indicate that young less educated workers in the informal sector experience faster wage growth than their peers in the formal sector based on existing models of on the job training acemoglu and pischke 1999a 1999b becker 1993 stevens 1994 this result suggests that informal jobs offer valuable general training opportunities to young less educated workers the literature provides little evidence on wage growth in the informal sector or on how it compares with wage growth in the formal sector there is some evidence on the wage gain or loss from informality for example maloney 1999 and alcaraz et al 2011 provide estimates of the wage change associated with transitions between the formal and informal sectors in mexico the results in both studies indicate that informal to formal transitions are associated with positive wage changes while transitions in the opposite direction are associated with negative wage changes however none of these two studies provide evidence on wage growth experienced by workers in the informal sector or how it compares to wage growth in the formal sector

market innovation competition an evolutionary model of industrial dynamics abstract a model is presented of the behavior of a number of competing firms producing functionally similar products each firm searches for new routines and new combinations of the routines i e technical and organizational ideas and skills associated with a particular economic context decisions of a firm related to investment modernization of production price etc are based on the firm s evaluation of the behavior of other competing firms and the expected response of the market firms search for new combinations of routines in order to minimize the unit cost of production maximize the productivity of capital and maximize the competitiveness of their products in the market results of simulation of the model concerning investigation of price setting procedures and long and short term firms objectives are presented