Flexible Labor Regulations and Informality in Egypt

23 Pages Posted: 13 Nov 2017

See all articles by Jackline Wahba

Jackline Wahba

University of Southampton, Department of Economics; IZA Institute of Labor Economics

Ragui A. Assaad

University of Minnesota - Twin Cities - Hubert H. Humphrey Institute of Public Affairs

Date Written: November 2017

Abstract

Do more flexible labor market regulations reduce informal employment in formal firms? This paper examines the effects of changes in labor regulations on the incidence of formal employment. Using the case of Egypt, we study the effects of the introduction of more flexible labor regulations in 2003 on the probability that non‐contractual workers will be granted a formal employment contract. To identify the effect of the law and control for potential confounding factors, we use a difference‐in‐difference estimator that measures the difference in the pre‐ and post‐law probability of obtaining a formal contract across a treatment group of non‐contractual workers initially employed in formal firms and a comparison group of non‐contractual workers initially employed in informal firms. The latter serve as a useful comparison group since informal firms are unlikely to formalize as a result of the law, so that the only way their workers can become formal is to move to another firm. Our findings show that the passage of the new labor law did in fact increase the probability of transitioning to formal employment for non‐contractual workers employed in formal firms by about 3–3.5 percentage points, or the equivalent of at least a fifth of informal workers in formal firms.

Suggested Citation

Wahba, Jackline and Assaad, Ragui A., Flexible Labor Regulations and Informality in Egypt (November 2017). Review of Development Economics, Vol. 21, Issue 4, pp. 962-984, 2017, Available at SSRN: https://ssrn.com/abstract=3069179 or http://dx.doi.org/10.1111/rode.12288

Jackline Wahba (Contact Author)

University of Southampton, Department of Economics ( email )

Southampton, SO171BJ
United Kingdom
+44 23 8059 3996 (Phone)

HOME PAGE: http://https://sites.google.com/site/jackiewahba/

IZA Institute of Labor Economics

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

Ragui A. Assaad

University of Minnesota - Twin Cities - Hubert H. Humphrey Institute of Public Affairs ( email )

301 19th Ave S
Minneapolis, MN 55455
United States

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