Unpacking the persistence of informality

Villena-Roldán, Benjamin (2024): Unpacking the persistence of informality.

Abstract

In emerging economies, policymakers should care not only about the informality level but also about its persistence, which also has key welfare implications. Considering worker flows that drive people into informality is important for developing effective public policies. Using a Markov representation of worker flows and correcting for time aggregation, I find low persistence of informality in Chile, implying an average duration of nearly 3.5 months, and estimate the contributions of labor market transitions among formality, informality, unemployment, and inactivity. The flow into informality from unemployment is the main force accounting for persistence, which suggests that informality is a temporary shelter from joblessness. I also find informality persistence is higher for females, young workers, and tertiary-educated individuals

• Item Type: MPRA Paper
• Language: English
• Keywords: Informality, unemployment, transition rates, time-aggregation bias
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; J - Labor and Demographic Economics > J4 - Particular Labor Markets > J46 - Informal Labor Markets; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J64 - Unemployment: Models, Duration, Incidence, and Job Search

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