Transitions to and from formal employment and income dynamics
Evidence from developing economies
Using panel data for Indonesia, Malawi, Peru and South Africa, this paper investigates
the relationship between transitions to formal employment and workers’ labour income.
It shows that transiting from informal to formal employment increases the probability
of improving workers’ labour income in both absolute and relative terms. However,
income gains from formalisation do not accrue to all workers equally. Switching to
formal employment has the greatest potential to improve the labour income of the richest
workers. The chances of improving the labour income of the poorest workers through
formalisation are slim. Transitions between formal and informal employment affect
income gains and losses differently for men and women, older and younger workers,
and workers with different levels of schooling. The effects of labour market transitions
on income changes are considerably greater in magnitude than other life events such
as a births, separation, or death of a partner or spouse.
Published on October 06, 2023
In series:OECD Development Centre Working Papersview more titles