Bound to Lose, Bound to Win? The Financial Crisis and the Informal-Formal Sector Earnings Gap in Serbia

45 Pages Posted: 4 Sep 2015

See all articles by Niels-Hugo Blunch

Niels-Hugo Blunch

Washington and Lee University; IZA Institute of Labor Economics

Abstract

While the informal sector has received widespread attention in academic and policy arenas in recent decades, knowledge gaps and controversies remain. First, while the evidence is starting to emerge, there is still more to learn about the formal-informal sector earnings gap of the former Socialist regimes of Eastern Europe and Central Asia. Second, the widespread debate in both academic and policy circles of what constitutes "the" informal sector has led to substantial controversy and different definitions. Third, our knowledge is scarce regarding the impact of the current financial crisis on labor markets – both formal and informal.By examining the incidence and determinants of the formal-informal sector earnings gap for adult male dependent employees using two identical, nationally representative labor force surveys for Serbia – one just prior to the impact of the recent international financial crisis and one about a year into the crisis – for three alternative measures of informality, this paper adds to our understanding in all three of these dimensions.Among the main results is the finding of a substantively large formal-informal sector gap (favoring the formal sector), which appears to have decreased substantially overall following the crisis. Additional results suggest that formal sector workers are concentrated in better paying industries and occupations and have more education and other favorable characteristics than informal sector workers, and at the same time also have higher returns to their (already favorable) characteristics overall, with education and part-time status consistently among the main drivers of the observed gap.

Keywords: detailed earnings decomposition, earnings decomposition, labor market segmentation, formal-informal sector earnings gap, international financial crisis, Serbia

JEL Classification: I24, J31, J42, J46

Suggested Citation

Blunch, Niels-Hugo, Bound to Lose, Bound to Win? The Financial Crisis and the Informal-Formal Sector Earnings Gap in Serbia. IZA Discussion Paper No. 9231, Available at SSRN: https://ssrn.com/abstract=2655272

Niels-Hugo Blunch (Contact Author)

Washington and Lee University ( email )

Department of Economics
Lexington, VA 24450
United States

HOME PAGE: http://www.wlu.edu/williams-school/economics/faculty-and-staff/profile?ID=x258

IZA Institute of Labor Economics ( email )

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

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