# **Appendix C. Definition of Variables**

<u>Employed Dummy: The employed dummy is equal to one for everybody who</u>

1. Worked for pay for a least one hour during the past week, or

2. Was on paid vacation, leave or on strike during the past week, or 3. Didn’t work during the past week for other reasons, but has a job and will return to work within one month, or 4. Helped somebody else without pay in their business.

This and all other dummy variables are zero for everybody else in my sample, which are people between 20 and 65 years old.

<u>Wage Earner Dummy: This dummy is equal to one for people who</u>

1. Are employed according to the definition above, and

2. Who chose the option of “worker” or “member of a cooperative” as the answer to the question about which position they held in their main job.

<u>Registered Business Dummy: This dummy is equal to one for people who</u>

1. Are employed according to the definition above, and

2. Chose the option of “boss” or “self-employed” as the answer to the question about which position they held in their main job, and 3. Are classified into category 2 or 4 of the survey question “What is the name of your business?” The instructions to interviewers specify that the word “name” here refers to the legal name under which the business is registered with the authorities. After asking this question, the interviewer has to further classify the business into one of the following categories 1) state-owned company, 2) industrial, commercial or services chain, 3) cooperative or trade union, 4) any other economic entity with name and/or register, 5) business owner or self-employed whose business does not have any (legal) name and/or register, 6) worker in a business without (legal) name and/or register, 7) worker in the US. All “bosses” or “self-employed” in my sample have values 2, 4, 5, or 7 for this question. I drop individuals with value 7. For category 4, the instructions tell the interviewer that any type of official register is sufficient, such as federal tax register, health ministry register, or municipal government register. Since the SARE reform simplifies obtaining a municipal license, I would ideally like to know whether the firm has a municipal register only. Firms need to register with the federal tax authority first before registering for a municipal license, implying that this measure may overstate the number of firms registered with the municipal government. Other types of registers, such as the health ministry register typically come after registration with the municipal authorities, meaning that these types of registers capture what is relevant for this study. An additional caveat is that the instructions also specify that anybody with a professional license who has an unregistered business should be classified as registered here. Note that neither tax registration nor professional licensing should change due to the reform (unless a businesses gets registered for taxes since the owner also wants to register it for a municipal license), meaning that the estimated effect of the reform on the number of registered businesses should only come from additional businesses with municipal licenses.

Only 53 percent of people in my sample who comply with criteria 1 and 2 also comply with criterion 3. The others are self-employed without being registered. Most of these people are engaged in small commerce, food preparation, repair work or construction. They work roadside without a fixed locality, in the home of their clients, or in their own home.

A concern is that people may not truthfully report whether their business is registered with the authorities. To check whether the fraction of individuals who report having a registered business seems reasonable, I compare the ENE number to the number of economic establishments per population of age 20-65, calculated from the 1999 Economic Census and the 2000 Demographic Census. For the 34 municipalities in my sample, the total number of establishments is 553,235 and the total population 20-65 is 8,285,900, implying a ratio of 0.067. This number is not far from the mean of the registered business dummy in my ENE sample (0.084). The Census number may be lower since the Economic Census only includes businesses that have a fixed establishment. While the majority of registered businesses fall into this category, there are also some who operate in vehicles (such as taxi drivers), who work from home or in the home of their clients.

<u>Low-Risk (High-Risk) Registered Businesses Dummy: The low-risk (high-risk) dummy is equal to one for individuals for whom the</u> registered business dummy is equal to one and who are in a low-risk (high-risk) industry. Appendix B describes the division of industries into low-risk and high-risk.

<u>Income: This variable is the monthly income from the main job held in the past week. It is zero for the people who work without pay,</u> who are unemployed, or who are out of the labor force.

<u>Schooling Dummies: These dummies refer to the highest completed level of schooling.</u> 51