Publication:
Informality in the Process of Development and Growth

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dc.contributor.authorLoayza, Norman V.
dc.date.accessioned2016-11-01T16:01:15Z
dc.date.available2016-11-01T16:01:15Z
dc.date.issued2016-10
dc.description.abstract"Informality" is a term used to describe the collection of firms, workers, and activities that operate outside the legal and regulatory systems. It is widespread in the majority of developing countries--in a typical developing economy, the informal sector produces about 35 percent of gross domestic product and employs 70 percent of the labor force. This paper studies informality in the context of economic development by presenting a model and projections that link informality, regulations, migration, and economic growth. This analytical framework highlights the trade-offs between formality and informality, the relationship between the different types of informality, and the connection between them and the forces of labor, capital, and productivity growth. The paper models the behavior of the informal sector based on the following fundamental asymmetry: formal firms confront higher labor costs while informal firms face higher capital costs and lower productivity. Using mandated minimum wages as the policy-induced distortion, the model first studies the static allocation of formal and informal capital and labor in a modern economy. Second, it opens the possibility of labor migration from a rudimentary economy with an ample supply of labor (rural areas or less advanced neighboring countries). Third, the model analyzes the dynamic behavior of the formal and informal sectors, considering how they affect and are affected by economic growth and labor migration. Then, the paper presents projections for the size of labor informality, in the modern and rudimentary economies, in the next two decades for a large group of countries representing all regions of the world. The projections are based on the calibration and simulation of the model and serve to discuss its usefulness and limitations.en
dc.identifierhttp://documents.worldbank.org/curated/en/2016/10/26858497/informality-process-development-growth
dc.identifier.doi10.1596/1813-9450-7858
dc.identifier.urihttps://hdl.handle.net/10986/25303
dc.languageEnglish
dc.language.isoen_US
dc.publisherWorld Bank, Washington, DC
dc.relation.ispartofseriesPolicy Research Working Paper;No. 7858
dc.rightsCC BY 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo/
dc.subjectinformality
dc.subjectminimum wage
dc.subjectlabor costs
dc.subjecteconomic growth
dc.subjectmigration
dc.subjectlabor market
dc.subjectfinancial constraints
dc.subjectproductivity
dc.titleInformality in the Process of Development and Growthen
dc.typeWorking Paperen
dc.typeDocument de travailfr
dc.typeDocumento de trabajoes
dspace.entity.typePublication
okr.crossref.titleInformality in the Process of Development and Growth
okr.dataset.urlhttps://datacatalog.worldbank.org/node/98081
okr.date.disclosure2016-10-12
okr.doctypePublications & Research
okr.doctypePublications & Research::Policy Research Working Paper
okr.docurlhttp://documents.worldbank.org/curated/en/2016/10/26858497/informality-process-development-growth
okr.guid998481476291165295
okr.identifier.doi10.1596/1813-9450-7858
okr.identifier.externaldocumentum090224b08462eb08_2_0
okr.identifier.internaldocumentum26858497
okr.identifier.reportWPS7858
okr.importedtrue
okr.language.supporteden
okr.pdfurlhttp://documents.worldbank.org/curated/en/998481476291165295/pdf/WPS7858.pdfen
okr.topicSocial Protections and Labor::Labor Markets
okr.topicPoverty Reduction::Migration and Development
okr.topicSocial Protections and Labor::Wages, Compensation & Benefits
okr.topicMacroeconomics and Economic Growth::Economic Theory & Research
okr.topicPoverty Reduction::Employment and Shared Growth
okr.unitMacroeconomics and Growth Team, Development Research Group
relation.isSeriesOfPublication26e071dc-b0bf-409c-b982-df2970295c87
relation.isSeriesOfPublication.latestForDiscovery26e071dc-b0bf-409c-b982-df2970295c87
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