**Table 10. Observed and Counterfactual Returns to Education, 2006q2 anchor**

|||**Observed**||**Count**|**erfactual**|
|---|---|---|---|---|---|
||**All**|**Formal**|**Informal**|**All**|**Informal, Sim**|
|**Age**|0.0472<sup>***</sup>|0.0456<sup>***</sup>|0.0312<sup>***</sup>|0.0430<sup>***</sup>|0.0311<sup>***</sup>|
||(32.71)|(25.88)|(13.86)|(30.57)|(13.69)|
|**Age * age**|−0.000445<sup>***</sup>|−0.000400<sup>***</sup>|−0.000342<sup>***</sup>|−0.000401<sup>***</sup>|−0.000345<sup>***</sup>|
||(−23.16)|(−17.05)|(−11.38)|(−21.39)|(−11.36)|
|**Complete**|0.0732<sup>***</sup>|0.0691<sup>***</sup>|0.0213|0.0350<sup>**</sup>|−0.0406<sup>*</sup>|
|**Primary**|(5.63)|(3.71)|(1.27)|(2.76)|(−2.40)|
|**Incomplete**|<br>0.186<sup>***</sup>|<br>0.203<sup>***</sup>|<br>0.0787<sup>***</sup>|<br>0.196<sup>***</sup>|<br>0.130<sup>***</sup>|
|<br>**Junior High**|(10.79)|(8.48)|(3.45)|(11.63)|(5.64)|
|**Complete**|<br>0.219<sup>***</sup>|<br>0.224<sup>***</sup>|<br>0.0758<sup>***</sup>|<br>0.217<sup>***</sup>|<br>0.146<sup>***</sup>|
|<br>**Junior High**||||||
||(17.74)|(12.71)|(4.62)|(18.01)|(8.81)|
|**Incomplete**|0.362<sup>***</sup>|0.384<sup>***</sup>|0.0969<sup>***</sup>|0.349<sup>***</sup>|0.175<sup>***</sup>|
|<br>**Senior High**||||||
||(28.16)|(21.38)|(5.26)|(27.80)|(9.40)|
|**Complete**|<br>0.450<sup>***</sup>|<br>0.459<sup>***</sup>|<br>0.194<sup>***</sup>|<br>0.431<sup>***</sup>|<br>0.263<sup>***</sup>|
|<br>**Senior High**||||||
||(34.48)|(25.32)|(10.12)|(33.79)|(13.62)|
|**University**|<br>0.863<sup>***</sup>|<br>0.880<sup>***</sup>|<br>0.500<sup>***</sup>|<br>0.859<sup>***</sup>|<br>0.668<sup>***</sup>|
||(69.82)|(50.49)|(27.65)|(71.16)|(36.56)|
|Observations|35059|24440|10619|35059|10619|
|Adjusted_R_<sup>2</sup>|0.340|0.362|0.188|0.346|0.249|
|Controls|Municipality|Municipality|Municipality|Municipality|Municipality|

_Source:_ Authors’ analysis based on Economic Census and data from Encuesta Nacional de Ocupación y Empleo and Encuesta Nacional de Empleo. _Note: t_ statistics in parentheses;<sup>*</sup> _p_ < 0.05,<sup>**</sup> _p_ < 0.01,<sup>***</sup> _p_ < 0.001. _Incomplete Primary_ refers to persons who attended primary school but did not complete it. _Complete Primary_ refers to persons who attended and completed primary school but did not move on to Junior High. _Incomplete Junior High_ refers to persons who attended Junior High but did not complete it. _Complete Junior High_ refers to persons who attended and completed Junior High education but did not move on to Senior High. _Incomplete Senior High_ refers to persons who attended Senior High but did not complete it. _Complete Senior High_ refers to persons who attended and completed Senior High but did not move on to University. _University_ refers to persons who attended and obtained a University Degree.

# **General Equilibrium Effects**

A counterfactual earnings distribution of informal employees has been constructed assuming they are employed by formal firms. From the point of view of these employees, the exercise ensures that the effects of observable firm characteristics on earnings are the same for them as for formal employees. But it is critical to highlight that, from the point of view of firms, the counterfactual earnings distribution is not an equilibrium outcome. This is because formal and informal firms are not the same: even controlling for size, underlying differences in their production functions result 34