Formal Versus Informal Sector Choice of Wage Earners and Their Wages in Turkey

Economic Research Forum Working Paper No. 9927

37 Pages Posted: 26 Mar 2001

See all articles by Aysit Tansel

Aysit Tansel

Middle East Technical University (METU) - Department of Economics; IZA Institute of Labor Economics; Economic Research Forum (ERF)

Date Written: February 1999

Abstract

This study considers those wage earners who are covered by a social security program as part of the formal sector and those wage earners who are not covered by any social security program as part of the informal sector. Using 1994 Household Expenditure Survey, I first examine how individuals are selected into nonparticipation and employment in the covered, uncovered and other sectors. Then I estimate the selectivity corrected wage equations to examine wage determination in these sectors. These analysis are carried out for men and women separately. The results indicate that wage earners with more education are more likely to have social security coverage while those with less education are more likely to be uncovered. Further, when controlled for the observed characteristics and sample selection, for men, covered sector wages are at least twice as higher than uncovered sector wages at all levels of experience and education. This is true with some caveat for women also. This large differential in wages can be taken as an indication of labor market segmentation between the covered and uncovered wage earners.

Keywords: Formal versus Informal sector, Wage Earners, Gender

JEL Classification: J16, J31, J42

Suggested Citation

Tansel, Aysit, Formal Versus Informal Sector Choice of Wage Earners and Their Wages in Turkey (February 1999). Economic Research Forum Working Paper No. 9927. Available at SSRN: https://ssrn.com/abstract=263469 or http://dx.doi.org/10.2139/ssrn.263469

Aysit Tansel (Contact Author)

Middle East Technical University (METU) - Department of Economics ( email )

Inonu Bulvari
Ankara 06800
Turkey
90 312 210 2073 (Phone)
90 312 210 7964 (Fax)

IZA Institute of Labor Economics

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

Economic Research Forum (ERF) ( email )

21 Al-Sad Al-Aaly St.
(P.O. Box: 12311)
Dokki, Cairo
Egypt

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