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Title page 1

Contents 6

Foreword 11

Acknowledgments 14

About the Authors 17

Overview 19

Abbreviations 34

Introduction 36

Toward a Comprehensive Model of the Labor Market 39

Policy to Reach the Three Goals of Coverage, Quality Jobs, and Growth 46

Notes 48

References 49

1. Job Amenities and the Attraction of Self-Employment 52

Self-Employment and Microfirms as the Central Axis of Analysis of the Informal Sector 52

Self-Employment as a Global Phenomenon 54

The View from the Advanced Economies 56

The Fuzzy Distinction Between "Opportunity" and "Necessity" Self-Employment 58

Developing Countries Share the Global Preference for Self-Employment 60

Why Does Self-Employment Decline with Income, and What Causes Divergence from This Trend? 66

How Much Is Being Your Own Boss Worth? Measuring Amenity Value 73

Measuring Segmentation and Necessity Entrepreneurship Through Amenity-Adjusted Wage Comparisons 81

Conclusion 82

Notes 83

References 85

2. The Global Microfirm Paradox: Satisfied Entrepreneurs but Limited Growth 90

The Growth Dynamics of Microfirms 90

The Entry and Exit Dynamics of Microfirms 91

The Dynamics of Entry and Exit Viewed Through Labor Flows 93

Why Does Self-Employment Increase Across the Life Cycle? 97

The Role of Credit Constraints in Limiting Firm Size and Entrepreneurship 99

Microfirms Everywhere Do Not Grow Very Much 102

Credit Is a Limited Barrier to Growth 103

The Double Distribution of Firms 104

The Decision to Formalize: Formality as an Input for Growth 106

Conclusion 110

Notes 111

References 111

3. Informal Workers, Household Optimization, and Labor Market Distortions 115

Introduction 115

Who Are the Informal Salaried Workers? 116

Entry into Informal Salaried Work: Less Opportunity, More Necessity than Self-Employment 117

What Amenities Do the Informal Salaried Value? 121

The Increasingly Fuzzy Distinction Between Formal and Informal Employment 123

Household Decisions, Unpaid Work, and Universal Social Protection Coverage 128

Labor Market Frictions and Necessity Informality 131

Typology of the Dependent Informal 134

Conclusion 146

Notes 147

References 148

4. Policy Recommendations 151

A Comprehensive Framework to Understand the Developing-Country Labor Market and Design Effective Policy 151

Policy Recommendations 160

Data Needed 172

Conclusions 173

Notes 174

References 174

Tables 10

TABLE I.1. Fundamental Differences in Education, Age, and Sector Duration of Labor Force in Latin America and the Caribbean 42

TABLE 1.1. Motivations for Self-Employment Reported in Labor Market Surveys for Brazil and Mexico 59

TABLE 1.2. Comparison of Respondents' Motivations for Starting a Microenterprise 64

TABLE 2.1. Sources of Financing to Start Up a New Microfirm, Colombia, 2023, and Mexico, 2012 102

TABLE 2.2. Most Microfirms in the United States, Mexico, and Colombia Have Never Applied for Credit 103

TABLE 3.1. Share of Informal Salaried Workers in Brazil Who Do Not Want to Be Formal Salaried 121

TABLE 3.2. Distribution of Young Workers 122

TABLE 3.3. Benefits and Characteristic of Informal Workers who are Married 130

TABLE 3.4. Informal Salaried Prime-Age Workers, by Firm Size 138

Figures 8

FIGURE I.1. Informality Rate by Region 37

FIGURE I.2. Informality in LAC Has Stayed Stubbornly High 37

FIGURE I.3. Sectoral Composition Across the Life Cycle 43

FIGURE I.4. Most Informal Workers in LAC Work in Very Small Firms 45

FIGURE I.5. Changes in Health Coverage, by Region, 2001-23 48

FIGURE 1.1. Self-Employment Declines with the Level of Development 55

FIGURE 1.2. Historical Self-Employment Rate by GDP per Capita in Selected Advanced Economies Compared with Current Data of Latin America... 56

FIGURE 1.3. Workers' Preferences for Self-Employment and Current Employment Status 61

FIGURE 1.4. Share of Self-Employed Searching for a Formal Job 63

FIGURE 1.5. Microentrepreneurs Who Choose Self-Employment for Income and Independence 64

FIGURE 1.6. Unskilled Entrepreneurs Who Choose Self-Employment by Necessity 65

FIGURE 1.7. Amenities of Salaried Work Rise with Development 67

FIGURE 1.8. Impact of Benefit Valuation on Formalization Incentives 69

FIGURE 1.9. Labor Legislation Often Becomes More Rigid with Development 70

FIGURE 1.10. Share of the Workforce in Self-Employment and the Level of the Minimum Wage 72

FIGURE 1.11. Stated Compensation Required for Informal Self-Employed to Become Formal Salaried in Mexico 75

FIGURE 1.12. Women Value Flexibility and Autonomy More than Men 80

FIGURE 1.13. Workers Choose Jobs That Offer the Amenities They Value Most 81

FIGURE 1.14. The Amenities Premium in Self-Employment Exceeds the Wage Premium in Formal Employment 82

FIGURE 2.1. Higher Entry and Lower Exit Rates in Colombia and Mexico Lead to a Higher Share of Self-Employment than in the United States,... 92

FIGURE 2.2. Gross Domestic Product Growth and Transitions from Formal Employment to Self-Employment 94

FIGURE 2.3. Relative Work-Finding Rates 95

FIGURE 2.4. Work Transition Rates: Disaggregation of Figure 2.3 96

FIGURE 2.5. Preferences for Self-Employment Vary with Age in the Dominican Republic and Mexico 98

FIGURE 2.6. The Share of Self-Employed Who Prefer to Be Formal Salaried Decreases Sharply with Age in Brazil, Colombia, and Mexico 100

FIGURE 2.7. Workers Value Self-Employment More as They Age: Stated Compensation Required to Switch to a Salaried Job Across the Life Cycle, Mexico 101

FIGURE 2.8. Size Distribution of Low- and High-Ability Firms 105

FIGURE 2.9. Optimal Occupational Choice, by Skill Level and Preference 106

FIGURE 2.10. The Probability That a Firm Will Participate in an Institution of Civil Society Increases with Size and Age 108

FIGURE 2.11. Probability of Federal Registration (Chile, Colombia, and Mexico) 109

FIGURE 3.1. Dependent Informal Workers Are Younger, Less Educated, and Work Disproportionally More in Microfirms than Formal Salaried Workers 117

FIGURE 3.2. Informal Salaried Workers Mostly Work in Microfirms 118

FIGURE 3.3. Labor Market Transitions in Mexico for Workers Ages 18-54 119

FIGURE 3.4. Job Satisfaction for Informal Salaried and Self-Employed Workers 120

FIGURE 3.5. Benefits for Formal and Informal Workers 124

FIGURE 3.6. Implicit Tax on Formality 125

FIGURE 3.7. Willingness to Pay for Formal Jobs 126

FIGURE 3.8. Actual and Expected Costs of Formality in Colombia 127

FIGURE 3.9. Spouse Occupation Conditional on Head of Household Occupation (Primary Education Households) 129

FIGURE 3.10. Effect of Marriage and Motherhood on the Formal Employment of Women 131

FIGURE 3.11. Relationship Between Minimum Wage and the Share of Informal Salaried Workers 132

FIGURE 3.12. Amenity-Adjusted Earnings Gaps for Informal Salaried Workers Ages 18-54 Years, by Gender and Education 133

FIGURE 3.13. Sectoral Composition Across the Life Cycle 134

FIGURE 3.14. Tenure of Current Job, by Sector and Age Group 135

FIGURE 3.15. Transition to Different Employment Categories, by Age 136

FIGURE 3.16. Transition to Different Employment Categories, by Education 137

FIGURE 3.17. Relationship between Minimum Wage and Informal Salaried Workers at Prime and Pre-prime Ages 139

FIGURE 3.18. Distribution of Work Categories for Households with Self-Employed Workers 140

FIGURE 3.19. Distribution of Unpaid Workers Ages 18 and Older Within Nuclear Households 141

FIGURE 3.20. Comparison of Unpaid Workers to Workers in Microfirms, by Country 142

FIGURE 3.21. Distribution of Informal Salaried Workers in Firms with 50 or More Workers 143

FIGURE 3.22. Prevalence of Payments Under the Table, by Level of Income 145

FIGURE 4.1. Baseline and Counterfactual Results: Key Indicators 155

Boxes 8

BOX 1.1. The Various Types of Self-Employment 53

BOX 1.2. Measuring the Value of Job Amenities 75

BOX 1.3. Measuring What Workers Actually Value: A Large-Scale Choice Experiment on Informality in Latin America 77

BOX 4.1. Role of Digital Tools to Facilitate Formalization 167

Maps 9

MAP 3.1. Residential Labor Market Segregation in Mexico City 122

출판사 책소개

알라딘제공
Drawing on new data and modeling approaches, Rationalizing Informality: Social Protection, Job Quality, and Growth offers a fresh view of the nature and raison d' ? tre of the informal sector. Rather than portraying it as the disadvantaged sector of dysfunctional labor markets, the book emphasizes the continuity of worker behavior and labor force structure across the development process. While acknowledging that a minority of workers is rationed out of formal sector jobs, the evidence shows that the majority engage in the same job calculus as their advanced-country counterparts. In particular, the self-employed who form the backbone of the informal sector weigh amenities such as independence and flexibility against the costs and benefits of formality when selecting sectors. The volume introduces the first measures of these nonwage dimensions of job quality and finds that workers value them greatly, while valuing formal sector benefits far less than their cost to firms and workers. Bringing these insights together, Rationalizing Informality offers a unified model that incorporates both the forces pushing workers into informality and those pulling them toward it, and it quantifies the impact of policies meant to alter those forces. Ultimately, the book argues that attaining social progress, better jobs, and growth requires looking beyond informality and embracing a comprehensive set of reforms to strengthen both worker's and entrepreneur's skills, raise the dynamism of the formal sector, and better align social protection systems with worker and firm needs.

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