Self-Employment, Wage Employment and Informality in a Developing Economy

38 Pages Posted: 17 Mar 2012

See all articles by John Bennett

John Bennett

Brunel University London - Economics and Finance; Institute for the Study of Labor (IZA); University of Wales, Swansea - School of Business and Economics; Centre for Economic Policy Research (CEPR)

Matthew D. Rablen

University of Sheffield - Department of Economics

Abstract

We construct a simple model incorporating various urban labour market phenomena obtaining in developing economies. Our initial formulation assumes an integrated labour market and allows for entrepreneurship, self-employment and wage employment. We then introduce labour market segmentation. In equilibrium voluntary and involuntary self-employment, formal and informal wage employment, and formal and informal entrepreneurship may all coexist. We illustrate the model by an example calibrated on Latin American data, examining individual labour market transitions and implications of education/training and labour market policies. To diminish informality, cutting the costs of formality is more effective than raising those of informality.

Keywords: self-employment, wage employment, informality

JEL Classification: O17, J23

Suggested Citation

Bennett, John and Rablen, Matthew D., Self-Employment, Wage Employment and Informality in a Developing Economy. IZA Discussion Paper No. 6406. Available at SSRN: https://ssrn.com/abstract=2025322

John Bennett (Contact Author)

Brunel University London - Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom
+44 1895 816 201 (Phone)
+44 1895 203 384 (Fax)

Institute for the Study of Labor (IZA)

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

University of Wales, Swansea - School of Business and Economics ( email )

Singleton Park
Swansea, Wales SA2 8PP SA2 8PP
United Kingdom
+44 1792 295 168 (Phone)
+44 1792 295 872 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Matthew D. Rablen

University of Sheffield - Department of Economics ( email )

9 Mappin Street
Sheffield, S1 4DT
United Kingdom

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