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Informal Employment and the Role of Regional Governance

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Author

  • Erik Jonasson

Summary, in English

The aim of this paper is to provide an explanation to why the degree of informal employment may vary substantially between different regions within a country. In Brazil, 45% of workers in the urban labor force are employed informally. The degree of informal employment, however, varies substantially across regions, with some cities having 20% and others having 80% or more of their labor force in the informal sector. The hypothesis assessed here is that the quality of local governance-or government effectiveness-affects the decisions of workers and businesses as to whether to participate in the formal or the informal sector. The empirical analysis, based on data from 5500 Brazilian municipalities, shows that informal employment is lower in regions with better governance, higher average education, and with a relatively large manufacturing sector. Endogeneity concerns are addressed as part of a series of robustness checks of the results.

Publishing year

2011

Language

English

Pages

429-441

Publication/Series

Review of Development Economics

Volume

15

Issue

3

Document type

Journal article

Publisher

Wiley-Blackwell

Topic

  • Economics

Status

Published

ISBN/ISSN/Other

  • ISSN: 1363-6669