Our evidence is consistent with the view that earnings gaps between the self-employed and employees are due to efficiency wages and the sharing of quasi-rents. Because it is likely that firms in low income countries are less productive, compared to those in more developed countries, and offer fewer resources that boost worker productivity, these firms earn fewer rents that can be shared with workers. As countries develop and firms gain access to innovative technologies, the productivity of employees in firms increases and they are able to share more of their quasi-rents with workers, increasing the wages of employees relative to the self-employed. It is also reasonable to expect that the bargaining power of employees will increase as countries develop, due to the increasing prevalence of unions and the better enforcement of labor regulations. If the bargaining power of workers is positively correlated with level of development and labor productivity, then the relationship between the worker’s share of quasi-rents with development and productivity will be even stronger.

# **VII. Conclusion**

This paper uses data from 73 countries and multiple years from a comprehensive set of harmonized household surveys to estimate the proportion and wage differentials for selfemployed, informal, formal and salaried workers from around the world.

We find that approximately half of all workers in low income countries are nonprofessional own-account workers, while only 9% are formal employees, and only 2% of workers in low income countries are employers or professionals. As countries develop, the proportion of workers who are formal employees, employers and professional ownaccount workers increases, while the proportion of workers who are non-professional ownaccount workers falls. In high income countries, non-professional own-account workers make up 7 percent of all workers, less than 5 percent are employers and professionals, and almost 90 percent are employees.

Regionally, the proportion of self-employed is smallest in the developing economies of Europe and Central Asia. Our most comprehensive estimate is that approximately 95% of workers in Europe and Central Asia are wage and salaried employees, although half of these are informal employees. This is even higher than the proportion of workers who are employees in high income European countries, and compares to a much lower 68% of workers who are employees in Latin American and the Caribbean.

Across all regions and income levels, non-professional own-account workers and informal employees face an earnings penalty compared to formal employees. This penalty is statistically significant in all regions except for the developing economies of Europe and Central Asia, where the penalty is small and often not statistically significant. However, both the non-professional own-account and informal earnings penalties are small (and often not statistically significant) in low income countries, and in a larger sample of countries, non-professional own-account workers in low-income countries earn a premium relative to all (informal plus formal) wage employees. The penalties to being self-employed or informal increase as a country’s GDP increases. The earnings penalties for informal employees are largest in middle income countries, and the earnings penalties for nonprofessional own-account workers are largest in high income countries.

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