Do Workers in Chile Choose Informal Employment? A Dynamic Analysis of Sector Choice

56 Pages Posted: 20 Apr 2016

See all articles by Truman G. Packard

Truman G. Packard

World Bank - Europe and Central Asia Region; University of Oxford - Department of Economics

Date Written: May 1, 2007

Abstract

The degree to which a labor market is segmented and jobs in the formal sector of the economy are rationed is critical to the analysis of coverage of social insurance and pensions. Using unique panel data spanning the 1998-99 contraction in Chile, the author finds little evidence that self-employment is the residual sector of a dualistic labor market, as is often depicted in the literature. Data on transitions between sectors show that self-employment is not a free-entry sector, and that entrepreneurs can be pushed out of self-employment just as others are pushed out of formal employment during economic downturns. But employment without a contract does exhibit many of the features of the free-entry, employment safety net depicted in the dualistic literature. An annex to this paper presents supportive evidence from static analysis of selection-corrected wage differentials and a comment on the drawbacks of this approach.

Keywords: Labor Markets, Labor Standards, Work & Working Conditions, Labor Management and Relations, Educational Policy and Planning

Suggested Citation

Packard, Truman G., Do Workers in Chile Choose Informal Employment? A Dynamic Analysis of Sector Choice (May 1, 2007). World Bank Policy Research Working Paper No. 4232, Available at SSRN: https://ssrn.com/abstract=985004

Truman G. Packard (Contact Author)

World Bank - Europe and Central Asia Region ( email )

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University of Oxford - Department of Economics ( email )

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