1 / 20

"Labour Exclusion and Informality in a LatinAmerican country, a Latent Class model

approach "

Jorge DavalosOIT Oficina Regional

Jornadas sobre Análisis del Mercado Laboral, 2013

Labour Exclusion and Informalityin a Latin American country

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

2 / 20

Motivation

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

3 / 20

Informal Employment (ILO’s perspective):

Motivation

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

3 / 20

Informal Employment (ILO’s perspective):

Informal jobs are those whose labour status is not clearly defined, likeundeclared labour lacking of social benefits or at poor working conditions

Motivation

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

3 / 20

Informal Employment (ILO’s perspective):

Informal jobs are those whose labour status is not clearly defined, likeundeclared labour lacking of social benefits or at poor working conditions

0 20 40 60 80Informal Employment (last available indicator in %)

Venezuela, Bolivarian Republic ofUruguay

PeruParaguayPanama

NicaraguaMexico

HondurasGuatemalaEl Salvador

EcuadorDominican Republic

Costa RicaColombia

BrazilBolivia

Argentina

Motivation

4 / 20

� Classical view. Informality is the result of segmentation i.e. exces of labour supply(Harris & Todaro 1970).Workers have no choice than to create an "informal" market !

� New Evidence:Informality may also be avoluntary status

� Dickens & Lang (1985),Magnac (1991)� The World Bank:

+Mondino & Montoya (2002),Maloney (1999), Saavedra & Chong(1999)+ Perry, Maloney, Arias, Fajnzylber, Mason & Saavedra-Chanduvi (2007)

Motivation

4 / 20

� Classical view. Informality is the result of segmentation i.e. exces of labour supply(Harris & Todaro 1970).Workers have no choice than to create an "informal" market !

� New Evidence:Informality may also be avoluntary status

� Dickens & Lang (1985),Magnac (1991)� The World Bank:

+Mondino & Montoya (2002),Maloney (1999), Saavedra & Chong(1999)+ Perry et al. (2007)

Motivation

4 / 20

� Classical view. Informality is the result of segmentation i.e. exces of labour supply(Harris & Todaro 1970).Workers have no choice than to create an "informal" market !

� New Evidence:Informality may also be avoluntary status

� Dickens & Lang (1985),Magnac (1991)� The World Bank:

+Mondino & Montoya (2002),Maloney (1999), Saavedra & Chong(1999)+ Perry et al. (2007)

Motivation

4 / 20

� Classical view. Informality is the result of segmentation i.e. exces of labour supply(Harris & Todaro 1970).Workers have no choice than to create an "informal" market !

� New Evidence:Informality may also be avoluntary status

� Dickens & Lang (1985),Magnac (1991)� The World Bank:

+Mondino & Montoya (2002),Maloney (1999), Saavedra & Chong(1999)+ Perry et al. (2007)

Motivation

4 / 20

� Classical view. Informality is the result of segmentation i.e. exces of labour supply(Harris & Todaro 1970).Workers have no choice than to create an "informal" market !

� New Evidence:Informality may also be avoluntary status

� Dickens & Lang (1985),Magnac (1991)� The World Bank:

+Mondino & Montoya (2002),Maloney (1999), Saavedra & Chong(1999)+ Perry et al. (2007)

Motivation

4 / 20

� Classical view. Informality is the result of segmentation i.e. exces of labour supply(Harris & Todaro 1970).Workers have no choice than to create an "informal" market !

� New Evidence:Informality may also be avoluntary status

� Dickens & Lang (1985),Magnac (1991)� The World Bank:

+Mondino & Montoya (2002),Maloney (1999), Saavedra & Chong(1999)+ Perry et al. (2007)

Motivation

4 / 20

� Classical view. Informality is the result of segmentation i.e. exces of labour supply(Harris & Todaro 1970).Workers have no choice than to create an "informal" market !

� New Evidence:Informality may also be avoluntary status

� Dickens & Lang (1985),Magnac (1991)� The World Bank:

+Mondino & Montoya (2002),Maloney (1999), Saavedra & Chong(1999)+ Perry et al. (2007)

Motivation

4 / 20

� Classical view. Informality is the result of segmentation i.e. exces of labour supply(Harris & Todaro 1970).Workers have no choice than to create an "informal" market !

� New Evidence:Informality may also be avoluntary status

� Dickens & Lang (1985),Magnac (1991)� The World Bank:

+Mondino & Montoya (2002),Maloney (1999), Saavedra & Chong(1999)+ Perry et al. (2007)

Motivation

4 / 20

� Classical view. Informality is the result of segmentation i.e. exces of labour supply(Harris & Todaro 1970).Workers have no choice than to create an "informal" market !

� New Evidence:Informality may also be avoluntary status

� Dickens & Lang (1985),Magnac (1991)� The World Bank:

+Mondino & Montoya (2002),Maloney (1999), Saavedra & Chong(1999)+ Perry et al. (2007)

Motivation

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

5 / 20

The drawbacks→challenges:

� Exit or Exclusion are explained by different theoretical approaches� Hard to (empirically) identify excluded from non excluded informals

(subjective surveys and only a few exist)

+ This paper’s methodology explains/proposes :

� How an existing unifying theoretical framework may nest both (exit andexclusion)

� An econometric model for classification based on widely available data(Household surveys)

Motivation

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

5 / 20

The drawbacks→challenges:

� Exit or Exclusion are explained by different theoretical approaches� Hard to (empirically) identify excluded from non excluded informals

(subjective surveys and only a few exist)

+ This paper’s methodology explains/proposes :

� How an existing unifying theoretical framework may nest both (exit andexclusion)

� An econometric model for classification based on widely available data(Household surveys)

Motivation

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

5 / 20

The drawbacks→challenges:

� Exit or Exclusion are explained by different theoretical approaches� Hard to (empirically) identify excluded from non excluded informals

(subjective surveys and only a few exist)

+ This paper’s methodology explains/proposes :

� How an existing unifying theoretical framework may nest both (exit andexclusion)

� An econometric model for classification based on widely available data(Household surveys)

Motivation

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

5 / 20

The drawbacks→challenges:

� Exit or Exclusion are explained by different theoretical approaches� Hard to (empirically) identify excluded from non excluded informals

(subjective surveys and only a few exist)

+ This paper’s methodology explains/proposes :

� How an existing unifying theoretical framework may nest both (exit andexclusion)

� An econometric model for classification based on widely available data(Household surveys)

Motivation

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

5 / 20

The drawbacks→challenges:

� Exit or Exclusion are explained by different theoretical approaches� Hard to (empirically) identify excluded from non excluded informals

(subjective surveys and only a few exist)

+ This paper’s methodology explains/proposes :

� How an existing unifying theoretical framework may nest both (exit andexclusion)

� An econometric model for classification based on widely available data(Household surveys)

Motivation

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

5 / 20

The drawbacks→challenges:

� Exit or Exclusion are explained by different theoretical approaches� Hard to (empirically) identify excluded from non excluded informals

(subjective surveys and only a few exist)

+ This paper’s methodology explains/proposes :

� How an existing unifying theoretical framework may nest both (exit andexclusion)

� An econometric model for classification based on widely available data(Household surveys)

Theoretical framework

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

6 / 20

� Homogeneous productivity across workers� Workers receive job (wage) offers at random frequencies∼ Pλ

if λ → ∞⇒ perfect competition equilibrium� Two groups of workers with heterogenous information availability:

λ1 < λ2

Main implications:

Workers with less information stay at lower paid or less satisfactory jobs

This paper suggests :

� Workers atλ1 → segmented ones from Harris and Todaro model

Thus, Excluded workers may be identified to the group with lessinformation availability λ1

Theoretical framework

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

6 / 20

Burdett & Mortensen (1998) job search model, basic setup:

� Homogeneous productivity across workers� Workers receive job (wage) offers at random frequencies∼ Pλ

if λ → ∞⇒ perfect competition equilibrium� Two groups of workers with heterogenous information availability:

λ1 < λ2

Main implications:

Workers with less information stay at lower paid or less satisfactory jobs

This paper suggests :

� Workers atλ1 → segmented ones from Harris and Todaro model

Thus, Excluded workers may be identified to the group with lessinformation availability λ1

Theoretical framework

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

6 / 20

Burdett & Mortensen (1998) job search model, basic setup:

� Homogeneous productivity across workers� Workers receive job (wage) offers at random frequencies∼ Pλ

if λ → ∞⇒ perfect competition equilibrium� Two groups of workers with heterogenous information availability:

λ1 < λ2

Main implications:

Workers with less information stay at lower paid or less satisfactory jobs

This paper suggests :

� Workers atλ1 → segmented ones from Harris and Todaro model

Thus, Excluded workers may be identified to the group with lessinformation availability λ1

Theoretical framework

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

6 / 20

Burdett & Mortensen (1998) job search model, basic setup:

� Homogeneous productivity across workers� Workers receive job (wage) offers at random frequencies∼ Pλ

if λ → ∞⇒ perfect competition equilibrium� Two groups of workers with heterogenous information availability:

λ1 < λ2

Main implications:

Workers with less information stay at lower paid or less satisfactory jobs

This paper suggests :

� Workers atλ1 → segmented ones from Harris and Todaro model

Thus, Excluded workers may be identified to the group with lessinformation availability λ1

Theoretical framework

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

6 / 20

Burdett & Mortensen (1998) job search model, basic setup:

� Homogeneous productivity across workers� Workers receive job (wage) offers at random frequencies∼ Pλ

if λ → ∞⇒ perfect competition equilibrium� Two groups of workers with heterogenous information availability:

λ1 < λ2

Main implications:

Workers with less information stay at lower paid or less satisfactory jobs

This paper suggests :

� Workers atλ1 → segmented ones from Harris and Todaro model

Thus, Excluded workers may be identified to the group with lessinformation availability λ1

Theoretical framework

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

6 / 20

Burdett & Mortensen (1998) job search model, basic setup:

� Homogeneous productivity across workers� Workers receive job (wage) offers at random frequencies∼ Pλ

if λ → ∞⇒ perfect competition equilibrium� Two groups of workers with heterogenous information availability:

λ1 < λ2

Main implications:

Workers with less information stay at lower paid or less satisfactory jobs

This paper suggests :

� Workers atλ1 → segmented ones from Harris and Todaro model

Thus, Excluded workers may be identified to the group with lessinformation availability λ1

Theoretical framework

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

6 / 20

Burdett & Mortensen (1998) job search model, basic setup:

� Homogeneous productivity across workers� Workers receive job (wage) offers at random frequencies∼ Pλ

if λ → ∞⇒ perfect competition equilibrium� Two groups of workers with heterogenous information availability:

λ1 < λ2

Main implications:

Workers with less information stay at lower paid or less satisfactory jobs

This paper suggests :

� Workers atλ1 → segmented ones from Harris and Todaro model

Thus, Excluded workers may be identified to the group with lessinformation availability λ1

Theoretical framework

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

6 / 20

Burdett & Mortensen (1998) job search model, basic setup:

� Homogeneous productivity across workers� Workers receive job (wage) offers at random frequencies∼ Pλ

if λ → ∞⇒ perfect competition equilibrium� Two groups of workers with heterogenous information availability:

λ1 < λ2

Main implications:

Workers with less information stay at lower paid or less satisfactory jobs

This paper suggests :

� Workers atλ1 → segmented ones from Harris and Todaro model

Thus, Excluded workers may be identified to the group with lessinformation availability λ1

Theoretical framework

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

6 / 20

Burdett & Mortensen (1998) job search model, basic setup:

� Homogeneous productivity across workers� Workers receive job (wage) offers at random frequencies∼ Pλ

if λ → ∞⇒ perfect competition equilibrium� Two groups of workers with heterogenous information availability:

λ1 < λ2

Main implications:

Workers with less information stay at lower paid or less satisfactory jobs

This paper suggests :

� Workers atλ1 → segmented ones from Harris and Todaro model

Thus, Excluded workers may be identified to the group with lessinformation availability λ1

Theoretical framework

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

6 / 20

Burdett & Mortensen (1998) job search model, basic setup:

� Homogeneous productivity across workers� Workers receive job (wage) offers at random frequencies∼ Pλ

if λ → ∞⇒ perfect competition equilibrium� Two groups of workers with heterogenous information availability:

λ1 < λ2

Main implications:

Workers with less information stay at lower paid or less satisfactory jobs

This paper suggests :

� Workers atλ1 → segmented ones from Harris and Todaro model

Thus, Excluded workers may be identified to the group with lessinformation availability λ1

Theoretical framework

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

6 / 20

Burdett & Mortensen (1998) job search model, basic setup:

� Homogeneous productivity across workers� Workers receive job (wage) offers at random frequencies∼ Pλ

if λ → ∞⇒ perfect competition equilibrium� Two groups of workers with heterogenous information availability:

λ1 < λ2

Main implications:

Workers with less information stay at lower paid or less satisfactory jobs

This paper suggests :

� Workers atλ1 → segmented ones from Harris and Todaro model

Thus, Excluded workers may be identified to the group with lessinformation availability λ1

Theoretical Implications

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

7 / 20

� Lower wages:wR < wR̄

� Less satisfactory jobs:SR < SR̄

� Higher probability (J )of a job search:JR > JR̄

� Higher unemployment probability

Empirically :

� Exclusion state (R) → unobserved� wages and a job seeking status & unemployment→ available� Job quality→ Informality Status (Pagés & Madrigal 2008)

Theoretical Implications

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

7 / 20

A lower λ ≡ Exclusion (R) implies :

� Lower wages:wR < wR̄

� Less satisfactory jobs:SR < SR̄

� Higher probability (J )of a job search:JR > JR̄

� Higher unemployment probability

Empirically :

� Exclusion state (R) → unobserved� wages and a job seeking status & unemployment→ available� Job quality→ Informality Status (Pagés & Madrigal 2008)

Theoretical Implications

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

7 / 20

A lower λ ≡ Exclusion (R) implies :

� Lower wages:wR < wR̄

� Less satisfactory jobs:SR < SR̄

� Higher probability (J )of a job search:JR > JR̄

� Higher unemployment probability

Empirically :

� Exclusion state (R) → unobserved� wages and a job seeking status & unemployment→ available� Job quality→ Informality Status (Pagés & Madrigal 2008)

Theoretical Implications

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

7 / 20

A lower λ ≡ Exclusion (R) implies :

� Lower wages:wR < wR̄

� Less satisfactory jobs:SR < SR̄

� Higher probability (J )of a job search:JR > JR̄

� Higher unemployment probability

Empirically :

� Exclusion state (R) → unobserved� wages and a job seeking status & unemployment→ available� Job quality→ Informality Status (Pagés & Madrigal 2008)

Theoretical Implications

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

7 / 20

A lower λ ≡ Exclusion (R) implies :

� Lower wages:wR < wR̄

� Less satisfactory jobs:SR < SR̄

� Higher probability (J )of a job search:JR > JR̄

� Higher unemployment probability

Empirically :

� Exclusion state (R) → unobserved� wages and a job seeking status & unemployment→ available� Job quality→ Informality Status (Pagés & Madrigal 2008)

Theoretical Implications

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

7 / 20

A lower λ ≡ Exclusion (R) implies :

� Lower wages:wR < wR̄

� Less satisfactory jobs:SR < SR̄

� Higher probability (J )of a job search:JR > JR̄

� Higher unemployment probability

Empirically :

� Exclusion state (R) → unobserved� wages and a job seeking status & unemployment→ available� Job quality→ Informality Status (Pagés & Madrigal 2008)

Theoretical Implications

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

7 / 20

A lower λ ≡ Exclusion (R) implies :

� Lower wages:wR < wR̄

� Less satisfactory jobs:SR < SR̄

� Higher probability (J )of a job search:JR > JR̄

� Higher unemployment probability

Empirically :

� Exclusion state (R) → unobserved� wages and a job seeking status & unemployment→ available� Job quality→ Informality Status (Pagés & Madrigal 2008)

Theoretical Implications

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

7 / 20

A lower λ ≡ Exclusion (R) implies :

� Lower wages:wR < wR̄

� Less satisfactory jobs:SR < SR̄

� Higher probability (J )of a job search:JR > JR̄

� Higher unemployment probability

Empirically :

� Exclusion state (R) → unobserved� wages and a job seeking status & unemployment→ available� Job quality→ Informality Status (Pagés & Madrigal 2008)

Theoretical Implications

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

7 / 20

A lower λ ≡ Exclusion (R) implies :

� Lower wages:wR < wR̄

� Less satisfactory jobs:SR < SR̄

� Higher probability (J )of a job search:JR > JR̄

� Higher unemployment probability

Empirically :

� Exclusion state (R) → unobserved� wages and a job seeking status & unemployment→ available� Job quality→ Informality Status (Pagés & Madrigal 2008)

Theoretical Implications

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

7 / 20

A lower λ ≡ Exclusion (R) implies :

� Lower wages:wR < wR̄

� Less satisfactory jobs:SR < SR̄

� Higher probability (J )of a job search:JR > JR̄

� Higher unemployment probability

Empirically :

� Exclusion state (R) → unobserved� wages and a job seeking status & unemployment→ available� Job quality→ Informality Status (Pagés & Madrigal 2008)

The Latent Class Model

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

8 / 20

wage (w)

X R labour status (S)

job seek(J )

Figure 1: Model’s structure

The Latent Exclusion RegimeR

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

9 / 20

� Exclusion :

R =

{

1 Excluded ifR∗ ≥ 00 Non-excluded otherwise

� Its specification :

π

g(π)I.

tR = 1 R = 0

Figure 2:Labour productivities, supply(blue) and demand(red) density functions

The Latent Exclusion RegimeR

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

9 / 20

� Exclusion :

R =

{

1 Excluded ifR∗ ≥ 00 Non-excluded otherwise

� Its specification :

π

g(π)I.

tR = 1 R = 0

Figure 2:Labour productivities, supply(blue) and demand(red) density functions

The Latent Exclusion RegimeR

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

9 / 20

� Exclusion :

R =

{

1 Excluded ifR∗ ≥ 00 Non-excluded otherwise

� Its specification :

π

g(π)I.

tR = 1 R = 0

Figure 2:Labour productivities, supply(blue) and demand(red) density functions

The Latent Exclusion RegimeR

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

10 / 20

� Exclusion :

R =

{

1 Excluded ifR∗ ≥ 00 Non-excluded otherwise

� Its specification :

π

g(π)II.

t1 t2R = 1 R = 1R = 0

Figure 3:Labour productivities, supply(blue) and demand(red) density functions

Indicators specification

11 / 20

Indicators specification

11 / 20

Table 1: Endogenous variables densities and cdf’s

Definition Specification

P [J |x,R]Probability of the dichotomous job seeking in-dicatorJ .

Logit∗

P [S|x,R]

Probability of observing the Labour statuswhereS is qualitative and nominal. The fourlabour status categories inS are formal, inde-pendent, informal and unemployed

Mixed multinomial logit∗

fu(w|x,R,S)Observed wage density function , whereustands for the residual term.

Linear regression∗

P [R|x]Probability of the underlying dichotomousregime

Logit∗

∗ Linked to the other model equations through the mixing distributionψ(ε)

The Data

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

12 / 20

� Brazil 2004 household survey (PNAD)� Male individuals between 18 and 65 years old� Workers with 2 or more jobs are not considered (2.5% of the sample)� Four labour categories: formals, independents,informals and

unemployed

Informality . Workers whose current job is not registered on theirworking card. Not registered jobs are not covered by the labour marketregulation.

The Data

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

12 / 20

� Brazil 2004 household survey (PNAD)� Male individuals between 18 and 65 years old� Workers with 2 or more jobs are not considered (2.5% of the sample)� Four labour categories: formals, independents,informals and

unemployed

Informality . Workers whose current job is not registered on theirworking card. Not registered jobs are not covered by the labour marketregulation.

The Data

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

12 / 20

� Brazil 2004 household survey (PNAD)� Male individuals between 18 and 65 years old� Workers with 2 or more jobs are not considered (2.5% of the sample)� Four labour categories: formals, independents,informals and

unemployed

Informality . Workers whose current job is not registered on theirworking card. Not registered jobs are not covered by the labour marketregulation.

The Data

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

12 / 20

� Brazil 2004 household survey (PNAD)� Male individuals between 18 and 65 years old� Workers with 2 or more jobs are not considered (2.5% of the sample)� Four labour categories: formals, independents,informals and

unemployed

Informality . Workers whose current job is not registered on theirworking card. Not registered jobs are not covered by the labour marketregulation.

The Data

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

12 / 20

� Brazil 2004 household survey (PNAD)� Male individuals between 18 and 65 years old� Workers with 2 or more jobs are not considered (2.5% of the sample)� Four labour categories: formals, independents,informals and

unemployed

Informality . Workers whose current job is not registered on theirworking card. Not registered jobs are not covered by the labour marketregulation.

The Data

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

12 / 20

� Brazil 2004 household survey (PNAD)� Male individuals between 18 and 65 years old� Workers with 2 or more jobs are not considered (2.5% of the sample)� Four labour categories: formals, independents,informals and

unemployed

Informality . Workers whose current job is not registered on theirworking card. Not registered jobs are not covered by the labour marketregulation.

Exclusion probability

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

13 / 20

Exclusion probability

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

13 / 20

Table 2: Unconditional exclusion probability(P [R = 1]), logit estimated parameters.

Variable parameters

White(race) -1.3(0.15)

Years of education(Urban) -0.08(0.02)

Years of education 0.04a

(0.04)Years of education(> 15) -0.84

(0.19)Urban 0.62

(0.19)Potential Experience -0.53

(0.06)Sqrd. Potl. Exp./100 0.73

(0.08)Educ.× Potl.Exper./100 0.57

(0.12)

Exclusion probability

14 / 20

Exclusion probability

14 / 20

Figure 4:Exclusion probability and potential experience (by ethnicgroups )

Potential experience

Exc

lusi

on P

roba

bilit

y

0.2

0.4

0.6

0.8

10 20 30 40

factor(ethnic)

Other

White

Exclusion probability

15 / 20

Exclusion probability

15 / 20

Figure 5:Exclusion probability and years of education

Years of education

Exc

lusi

on P

roba

bilit

y

0.2

0.4

0.6

0.8

2 4 6 8 10 12 14

factor(POEXP)

6

10

15

35

Exclusion probability

15 / 20

Figure 5:Exclusion probability and years of education

Years of education

Exc

lusi

on P

roba

bilit

y

0.2

0.4

0.6

0.8

2 4 6 8 10 12 14

factor(POEXP)

6

10

15

35

Exclusion seems toincreasewith education... !

Results

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

16 / 20

� Urban→ Exclusion� Education→ Exclusion

But other empirical evidence supports these findings Ernst (2008) :

� Structural change in Brazil’s labour market since the early90’s, caused asystematic increase of the lower and middle skilled labour demand

� It also increased the urban unemployment rates : urban unemployment≈ 10% rural unemployment≈ 1%

Results

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

16 / 20

Counterintuitive...

� Urban→ Exclusion� Education→ Exclusion

But other empirical evidence supports these findings Ernst (2008) :

� Structural change in Brazil’s labour market since the early90’s, caused asystematic increase of the lower and middle skilled labour demand

� It also increased the urban unemployment rates : urban unemployment≈ 10% rural unemployment≈ 1%

Results

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

16 / 20

Counterintuitive...

� Urban→ Exclusion� Education→ Exclusion

But other empirical evidence supports these findings Ernst (2008) :

� Structural change in Brazil’s labour market since the early90’s, caused asystematic increase of the lower and middle skilled labour demand

� It also increased the urban unemployment rates : urban unemployment≈ 10% rural unemployment≈ 1%

Results

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

16 / 20

Counterintuitive...

� Urban→ Exclusion� Education→ Exclusion

But other empirical evidence supports these findings Ernst (2008) :

� Structural change in Brazil’s labour market since the early90’s, caused asystematic increase of the lower and middle skilled labour demand

� It also increased the urban unemployment rates : urban unemployment≈ 10% rural unemployment≈ 1%

Results

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

16 / 20

Counterintuitive...

� Urban→ Exclusion� Education→ Exclusion

But other empirical evidence supports these findings Ernst (2008) :

� Structural change in Brazil’s labour market since the early90’s, caused asystematic increase of the lower and middle skilled labour demand

� It also increased the urban unemployment rates : urban unemployment≈ 10% rural unemployment≈ 1%

Results

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

16 / 20

Counterintuitive...

� Urban→ Exclusion� Education→ Exclusion

But other empirical evidence supports these findings Ernst (2008) :

� Structural change in Brazil’s labour market since the early90’s, caused asystematic increase of the lower and middle skilled labour demand

� It also increased the urban unemployment rates : urban unemployment≈ 10% rural unemployment≈ 1%

Results

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

16 / 20

Counterintuitive...

� Urban→ Exclusion� Education→ Exclusion

But other empirical evidence supports these findings Ernst (2008) :

� Structural change in Brazil’s labour market since the early90’s, caused asystematic increase of the lower and middle skilled labour demand

� It also increased the urban unemployment rates :urban unemployment≈ 10% rural unemployment≈ 1%

Results

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

16 / 20

Counterintuitive...

� Urban→ Exclusion� Education→ Exclusion

But other empirical evidence supports these findings Ernst (2008) :

� Structural change in Brazil’s labour market since the early90’s, caused asystematic increase of the lower and middle skilled labour demand

� It also increased the urban unemployment rates : urban unemployment≈ 10% rural unemployment≈ 1%

Classification

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

17 / 20

Table 3:Estimated labor status and exclusion regime distribution

formal independent informal unemployed

Non-excluded 0.25 0.15 0.05 0.02 0.47

Excluded 0.23 0.08 0.12 0.10 0.530.48 0.23 0.17 0.12

Based on estimated posterior probabilities

Concluding Remarks

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

18 / 20

� Estimated parameters reflect the structural shocks in the labour market(education and urban→R)

� From labour status probabilities given exclusionP [S|R] :

� Education unambiguously reduces exclusion at any labour status� The estimated share of excluded within the informal sector≈ 70%� Exclusion mainly affects informality and unemployment

Concluding Remarks

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

18 / 20

� Estimated parameters reflect the structural shocks in the labour market(education and urban→R)

� From labour status probabilities given exclusionP [S|R] :

� Education unambiguously reduces exclusion at any labour status� The estimated share of excluded within the informal sector≈ 70%� Exclusion mainly affects informality and unemployment

Concluding Remarks

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

18 / 20

� Estimated parameters reflect the structural shocks in the labour market(education and urban→R)

� From labour status probabilities given exclusionP [S|R] :

� Education unambiguously reduces exclusion at any labour status� The estimated share of excluded within the informal sector≈ 70%� Exclusion mainly affects informality and unemployment

Concluding Remarks

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

18 / 20

� Estimated parameters reflect the structural shocks in the labour market(education and urban→R)

� From labour status probabilities given exclusionP [S|R] :

� Education unambiguously reduces exclusion at any labour status� The estimated share of excluded within the informal sector≈ 70%� Exclusion mainly affects informality and unemployment

Concluding Remarks

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

18 / 20

� Estimated parameters reflect the structural shocks in the labour market(education and urban→R)

� From labour status probabilities given exclusionP [S|R] :

� Education unambiguously reduces exclusion at any labour status� The estimated share of excluded within the informal sector≈ 70%� Exclusion mainly affects informality and unemployment

Concluding Remarks

Labour Exclusion andInformality in a LatinAmerican country

Motivation

The Model

The Econometric Model

Results

Concluding Remarks

18 / 20

� Estimated parameters reflect the structural shocks in the labour market(education and urban→R)

� From labour status probabilities given exclusionP [S|R] :

� Education unambiguously reduces exclusion at any labour status� The estimated share of excluded within the informal sector≈ 70%� Exclusion mainly affects informality and unemployment

Thank you!

Labour Exclusion andInformality in a LatinAmerican country

Thank you!

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Thank you!

Labour Exclusion andInformality in a LatinAmerican country

Thank you!

19 / 20

Labour Exclusion andInformality in a LatinAmerican country

Thank you!

20 / 20

Labour Exclusion andInformality in a LatinAmerican country

Thank you!

20 / 20

Labour Exclusion andInformality in a LatinAmerican country

Thank you!

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