The Effect of Unobservables on Labour Supply Decisions: The Formal and Informal Sector During Transition
Ceema Zahra Namazie
affiliation not provided to SSRN
LSE STICERD Research Paper No. CASE072
The transition from a command economy in the FSU resulted in increased activities in the informal sector. However despite prevalent delays in wage payments many workers were still observed to be working full-time in the formal sector. Here a model of workers' labour supply decisions incorporates unobservable features of informal activities in both sectors; namely unofficial payments within the formal sector and stigma associated with the informal sector. These extensions result in non-trivial changes to workers' reservation wage conditions and reconcile the unexpected outcomes of workers' labour supply decisions. A limited empirical analysis of Kyrgyz data, for 1993 and 1996, provides support for the implications of this framework.
Number of Pages in PDF File: 35
JEL Classification: J220, P230working papers series
Date posted: July 14, 2008
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