Labor Market Institutions and Informality in Transition and Latin American Countries

Hartmut Lehmann () and Alexander Muravyev ()
Additional contact information
Alexander Muravyev: Higher School of Economics, St. Petersburg Branch
Authors registered in the RePEc Author Service: Александр Муравьев

No 7035, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper analyzes, using country-level panel data from transition economies and Latin America, the impact of labor market institutions on informal economic activity. The measure of informal economic activity is taken from Schneider et al. (2010), the most comprehensive study to date. The data on institutions, which cover employment protection legislation (EPL), the tax wedge, the unemployment benefit level, unemployment benefit duration and union density, are assembled at the IZA (transition countries) and the World Bank (LAC countries). We find that a more regulated labor market (higher EPL) increases the size of the informal economy. There is also evidence that a larger tax wedge increases informality. The tax wedge elasticity of informal economy, when evaluated at the sample mean, is rather modest, around 0.1%. Our results are broadly in line with the literature, which identifies labor market regulation and the tax wedge as important drivers of informality.

Keywords: transition countries; Latin America; labor market institutions; informality; macroeconometric regressions (search for similar items in EconPapers)
JEL-codes: E24 J21 J42 O17 P20 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2012-11
New Economics Papers: this item is included in nep-iue, nep-lab, nep-lam, nep-mac and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Published - published in: Froelich, M., Kaplan, D., Pages, C., Rigolini, J. and D. Robalino (Eds.): Social Insurance ad Labor Markets: How to Protect Workers while Creating Good Jobs, Oxford University Press, 2014, 375-410.

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Working Paper: Labor Market Institutions and Informality in Transition and Latin American Countries (2012)
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