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Reference: Paolo Falco, Andrew Kerr, Neil Rankin et al., (2010). The returns to formality and informality in urban Africa. CSAE (University of Oxford).Citable link to this page:


The returns to formality and informality in urban Africa. Series: CSAE Working Paper Series

Abstract: This paper addresses the question as to why we observe such large differentials inearnings in urban African labour markets after controlling for observable human capital.We first use a three year panel across Ghana and Tanzania and find common patterns forboth countries assuming that movement between occupations is exogenous. Unobservedindividual market ability is by far the most important factor explaining the variance ofearnings. Sector differences do matter even with controls for ability and the sectoral gapbetween private wage employment and civil servants is about 50 per cent, once wecontrol for unobserved time-invariant factors. Wage earners earn the same as the selfemployedin both Ghana and Tanzania. An additional important aspect of formality isenterprise size. At most half of the OLS effect of size on earnings can be explained byunobservable ability. Workers in largest firms are the high earners with wage rates whichexceed those of civil servants. We then use an extension of the Ghana panel to five yearsto assess the extent of possible biases from the assumption of exogenous movement. Wefind evidence that this is important and that OLS may be understating the extent of boththe size effect and the private sector wage (negative) premium. The implications of ourresults for understanding the nature of formal and informal employment in Africa arediscussed.

Bibliographic Details

Issue Date: 2010Identifiers

Urn: uuid:f7e21a18-bbc9-45d9-859d-efb0b4f3cab7 Item Description

Type: info:eu-repo/semantics/workingPaper;

Language: en


Author: Paolo Falco - - - Andrew Kerr - - - Neil Rankin - - - Justin Sandefur - - - Francis Teal - - - - Bibliographic Details Issue Date



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