Informal self-employment and macroeconomic fluctuations

By N. Fiess, Marco Fugazza, William F. Maloney. 2010

145 citations recorded by the source corpus.

Informal self-employment is a major source of employment in developing countries. Its cyclical behavior is important to our understanding of the functioning of LDC labor markets, but turns out to be surprisingly complex. We develop a flexible model with two sectors: a formal salaried (tradable) sector that may be affected by wage rigidities, and an informal (non tradable) self-employment sector faced with liquidity constraints to entry. This labor market is then embedded in a standard small economy macro model. We show that different types of shocks interact with different institutional contexts to produce distinct patterns of comovement between key variables of the model: relative salaried/self-employed incomes, relative salaried/self-employed sector sizes and the real exchange rate. Model predictions are then tested empirically for Argentina, Brazil, Colombia and Mexico. We confirm episodes where the expansion of informal self-employment is consistent with the traditional segmentation views of informality. However, we also identify episodes where informal self-employment behaves "pro-cyclically"; here, informality is driven by relative demand or productivity shocks to the non tradable sector.

Subfields: Economics and Econometrics, General Health Professions, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/e40bfc64167bbaa1e68ac2b8edd1b1e6f5b86315

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

1. Jeronimo Carballo
2. A. Cusolito
3. Christian Volpe Martincus
4. Alfredo Jiménez

In Sociology and Political Science

1. A. Cusolito
2. Christian Volpe Martincus
3. Alfredo Jiménez
4. Jeronimo Carballo

Citations in the corpus

• The Impact of Educational Levels on Formal and Informal Entrepreneurship (2015, background): “In fact, it epresents more than half of the total economy in some ountries, being informal entrepreneurship one of its main omponents (ILO, 2002; Fiess et al., 2010).”
• Roads, exports and employment: Evidence from a developing country (2017, background): “…empirical evidence points to a complex pattern of co-movement between the degree of formalization and macroeconomic fluctuations, the former may be thought to increase when the economy is growing, such as in Peru over the sample period (see, e.g., Fiess et al., 2010 and Loayza and Rigolini, 2011).”