Revealed Informal Activity

20 Pages Posted: 11 Apr 2011

See all articles by Ralitza D. Dimova

Ralitza D. Dimova

Brunel University London - Economics and Finance; IZA Institute of Labor Economics

Ira N. Gang

Rutgers University - Economics Department; IZA Institute of Labor Economics

John Landon-Lane

Rutgers University, New Brunswick/Piscataway - Faculty of Arts and Sciences-New Brunswick/Piscataway - Department of Economics

Abstract

What does it mean to be in the informal sector? Many characterizations have been used in the literature, for example, firms that are unregistered or employ a small workforce or firms/economic enterprises that do not have access to formal capital markets. But many people participate in both formal and informal activities, while classification of participation is often based on primary employment. This creates limitations to the analytical power of existing measures of informality. We develop a method for assigning households to the informal sector by inferring informal sector activity using income and expenditure surveys. We apply this method to the case of Bulgaria using LSMS income and expenditure surveys before and after a significant economic reform and compare it to those made using other indicators of informal sector activity. Our work shows that the informal sector acts as a buffer for households during periods of crisis when formal sector employment opportunities are limited. It shows the limitations of alternative stylized measures of informality in assessing the vulnerability of households involved in the informal sector, especially during periods of extreme economic hardship.

Keywords: informal labour markets, crisis, Bulgaria

JEL Classification: O17

Suggested Citation

Dimova, Ralitza D. and Gang, Ira N. and Landon-Lane, John, Revealed Informal Activity. IZA Discussion Paper No. 5607, Available at SSRN: https://ssrn.com/abstract=1806408

Ralitza D. Dimova (Contact Author)

Brunel University London - Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Ira N. Gang

Rutgers University - Economics Department ( email )

75 Hamilton Street
ECONOMICS, New Jersey Hall, Rutgers University
New Brunswick, NJ 08901-1248
United States
732-932-7363 (Phone)
732-932-7416 (Fax)

HOME PAGE: http://econweb.rutgers.edu/gang/research

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

John Landon-Lane

Rutgers University, New Brunswick/Piscataway - Faculty of Arts and Sciences-New Brunswick/Piscataway - Department of Economics ( email )

75 Hamilton Street
New Brunswick, NJ 08901
United States

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