Earnings Premiums and Penalties for Self-Employment and Informal Employees Around the World

42 Pages Posted: 20 Apr 2016

See all articles by T. H. Gindling

T. H. Gindling

University of Maryland, Baltimore County; IZA Institute of Labor Economics

Nadwa Mossaad

University of Maryland, Baltimore County (UMBC)

David Locke Newhouse

World Bank

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Date Written: January 7, 2016

Abstract

This paper examines the earnings premiums associated with different types of employment in 73 countries. Workers are divided into four categories: non-professional own-account workers, employers and own-account professionals, informal wage employees, and formal wage employees. Approximately half of the workers in low-income countries are non-professional own-account workers and the majority of the rest are informal employees. Fewer than 10 percent are formal employees, and only 2 percent of workers in low-income countries are employers or own-account professionals. As per capita gross domestic product increases, there are large net shifts from non-professional own-account work into formal wage employment. Across all regions and income levels, non-professional own-account workers and informal wage employees face an earnings penalty compared with formal wage employees. But in low-income countries this earnings penalty is small, and non-professional own-account workers earn a positive premium relative to all wage employees. Earnings penalties for non-professional own-account workers tend to increase with gross domestic product and are largest for female workers in high-income countries. Men earn greater premiums than women for being employers or own-account professionals. These results are consistent with compensating wage differentials and firm quasi-rents playing important roles in explaining cross-country variation in earnings penalties, and raise questions about the extent to which the unskilled self-employed are rationed out of formal wage work in low-income countries.

Keywords: Rural Labor Markets, Labor Policies, Labor Markets

Suggested Citation

Gindling, Thomas and Mossaad, Nadwa and Newhouse, David Locke, Earnings Premiums and Penalties for Self-Employment and Informal Employees Around the World (January 7, 2016). World Bank Policy Research Working Paper No. 7530, Available at SSRN: https://ssrn.com/abstract=2741185

Thomas Gindling (Contact Author)

University of Maryland, Baltimore County ( email )

1000 Hilltop Circle
Baltimore, MD 21250
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Nadwa Mossaad

University of Maryland, Baltimore County (UMBC) ( email )

1000 Hilltop Circle
Baltimore, MD 21250
United States

David Locke Newhouse

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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