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Interactions between Formal and Informal Labor Dynamics: Revealing Job Flows from Household Surveys

Author

Listed:
  • Leonardo Fabio Morales

    (Banco de la República de Colombia)

  • Didier Hermida

    (Banco de la República de Colombia)

  • Eleonora Dávalos
Abstract
In its characterizations of job creation and job destruction rates, the literature on labor dynamics has largely ignored informal labor markets. The interrelationships between job creation and destruction among informal and formal labor markets are therefore still generally unknown, despite recent developments in the study of labor market dynamics. These interrelationships are important, however, because much of what researchers identify as formal job creation in developing countries involves substitution of informal jobs for formal ones. In this paper, we use an original methodology to derive hires as well as job creation, separation, and destruction flows from standard household surveys. The great advantage of this technique is that it allows measurements of these labor dynamic measures for the informal labor market. We find that informal labor markets are less fluid than formal ones, mainly because informal job-to-job transitions seem to have a low incidence. In addition, we characterize the relationship between informal job destruction and formal job creation. We find that almost 50% of job creation in the formal sector is caused by job destruction in the informal sector, and identify this formalization process as countercyclical. Our findings portray the informal labor market as an inferior segment; in good economic times, it loses importance as a source of formal jobs and as a recipient of jobs from the formal sector. **** RESUMEN: En los estudios sobre creación y destrucción de trabajo, la literatura sobre dinámica laboral ha ignorado al segmento informal del mercado. En general no se sabe mucho sobre la interdependencia de la creación y destrucción de trabajo entre estos segmentos. Las relaciones entre estas variables son importantes, ya que mucho de lo que a menudo se identifica como creación de trabajo formal, en realidad implica una sustitución de trabajos informales por formales. En este artículo, se utiliza una metodología original para derivar los flujos de contrataciones, separaciones, creación y destrucción de trabajo a partir de encuestas de hogares. La ventaja de la metodología es que también permite medir estos flujos para el segmento informal. Este estudio encuentra que el mercado laboral informal es menos fluido que el formal, principalmente porque las reasignaciones de trabajadores y la rotación laboral tienen baja incidencia en el segmento informal. Adicionalmente, en este artículo se caracteriza la relación entre la destrucción de trabajo informal y la creación de trabajo formal. Se halla que al menos el 50% de la creación de trabajo formal es causada por destrucción de trabajo informal; adicionalmente, este proceso de formalización resulta ser contra-cíclico. Nuestros resultados permiten inferir que el mercado laboral informal es un segmento inferior, ya que en los periodos de expansión económica pierde relevancia en dos sentidos: en primer lugar, como fuente para la creación de trabajos formales y, en segundo lugar, como receptor de trabajos desde el segmento formal.

Suggested Citation

  • Leonardo Fabio Morales & Didier Hermida & Eleonora Dávalos, 2019. "Interactions between Formal and Informal Labor Dynamics: Revealing Job Flows from Household Surveys," Borradores de Economia 1090, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:1090
    DOI: 10.32468/be.1090.pdf?sequence=10&isAllowed=y
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    Cited by:

    1. Montoya, J & Jurado, A., 2021. "Calidad del empleo agregado, formal e informal: un análisis para la economía colombiana en el periodo 2007 -2019," Documentos de trabajo - Alianza EFI 19290, Alianza EFI.
    2. Luz A. Flórez & Leonardo Fabio Morales & Daniel Medina & José Lobo, 2021. "Labor flows across firm size, age, and economic sector in Colombia vs. the United States," Small Business Economics, Springer, vol. 57(3), pages 1569-1600, October.
    3. Leonardo Fabio Morales & Leonardo Bonilla‐Mejía & Jose Pulido & Luz A. Flórez & Didier Hermida & Karen L. Pulido‐Mahecha & Francisco Lasso‐Valderrama, 2022. "Effects of the COVID‐19 pandemic on the Colombian labour market: Disentangling the effect of sector‐specific mobility restrictions," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(S1), pages 308-357, February.
    4. Deicy J. Cristiano-Botia & Manuel Dario Hernandez-Bejarano & Mario A. Ramos-Veloza, 2021. "Labor Market Indicator for Colombia (LMI)," Borradores de Economia 1152, Banco de la Republica de Colombia.
    5. Salazar, M., 2021. "Tax policies, informality, and real wage rigidities," Documentos de trabajo - Alianza EFI 20044, Alianza EFI.

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    More about this item

    Keywords

    Labor market fluidity; formality; labor demand; job creation; Fluidez del Mercado laboral; formalidad; demanda laboral; creación de trabajo;
    All these keywords.

    JEL classification:

    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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