Formal Measures of the Informal Sector Wage Gap in Mexico, El Salvador, and Peru

ECONOMIC DEVELOPMENT AND CULTURAL CHANGE, Vol. 45, No. 2, January 1997

Posted: 3 Sep 1997

See all articles by Veronica Ruiz de Castilla Brinson

Veronica Ruiz de Castilla Brinson

Stanford University

Christopher M. Woodruff

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS)

Douglas Marcouiller

Boston College; Saint Louis University - Department of Economics

Abstract

Using comparable micro-level data from three countries, we ask what type of person works in the informal sector and whether informal workers earn lower wages than observationally equivalent workers in the formal sector. The characteristics of informal workers are similar across countries. Surprisingly, when we control for these personal characteristics, we find a significant wage premium associated with formal employment in El Salvador and Peru but a premium associated with work in the informal sector in Mexico. A model of endogenous selection offers little help in explaining the differences in wage patterns. The research casts doubt on the received wisdom that the informal sector, always and everywhere, is a poorly paid but easily entered refuge for those who have no other employment opportunities.

JEL Classification: J24, J31, N36

Suggested Citation

Ruiz de Castilla Brinson, Veronica and Woodruff, Christopher and Marcouiller, Douglas, Formal Measures of the Informal Sector Wage Gap in Mexico, El Salvador, and Peru. ECONOMIC DEVELOPMENT AND CULTURAL CHANGE, Vol. 45, No. 2, January 1997, Available at SSRN: https://ssrn.com/abstract=10764

Veronica Ruiz de Castilla Brinson (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States
415-326-7160 Ext. 32 (Phone)
415-328-4163 (Fax)

Christopher Woodruff

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS) ( email )

9500 Gilman Drive
La Jolla, CA 92093-0519
United States
858-534-0590 (Phone)
858-534-3939 (Fax)

Douglas Marcouiller

Boston College ( email )

Chestnut Hill, MA 02167
United States

Saint Louis University - Department of Economics ( email )

Lindell Boulevard
Saint Louis, MO 63108
United States

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