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We study the impact of tax and minimum wage reforms on the incidence of informality. To gauge the incidence of informality, we use measures of the extent of tax evasion, the extent of minimum wage noncompliance, and the size of the informal workforce. Our approach allows us to examine (i) the distinction between determinants of firm-level reported wage distribution and actual wage distribution, (ii) the complementarity of tax and minimum wage enforcement, (iii) the impact that a minimum wage reform has on tax and minimum wage compliance, and (iv) the impact that a tax policy reform has on tax and minimum wage compliance. We conclude with the design of optimal minimum wage and tax policies (even in the complete absence of minimum wage enforcement). We do so based on two objectives derived from popular concerns associated with an unchecked expansion of informality: tax revenue maximization, and poverty alleviation among workers.

This study focuses on the relationship between foreign direct investment (FDI) and economic growth of the formal sector comprising all foreign and domestic registered enterprises engaged in production of goods and services.

This study uses a balanced longitudinal data set for the period from 2006 to 2014 from secondary sources in 63 provinces/cities of Vietnam. The generalized method of moments (GMM) estimation for a dynamic panel data model is applied.

The greater the share of FDI in capital resource, the more favorable the output growth in the whole formal sector. The FDI enterprises are more productive than domestic formal firms, and the output growth of FDI firms creates a positive spillover effect on the output growth of domestic firms.

The effect of FDI on economic growth is investigated at subnational level for the whole formal economic sector as well as the formal domestic firms. The domestic and foreign industrial agglomerations and the business environment are also examined.

The purpose of this paper is to understand labor market regulations and their consequences for the allocation of resources.

This paper constructs a theoretical model to study labor market regulations in developing countries and how it affects the allocation of resources between the less productive informal activities and more productive formal activities. It also provides empirical support for some theoretical results using cross-country data.

When workers are risk-averse and the market for insurance against labor income risk is missing, regulations that provide insurance to workers (such as severance payments) reduce misallocation. However, regulations that simply create barriers to the dismissal of workers increase misallocation and end up reducing the welfare of workers. This study also provides some empirical evidence broadly consistent with the theoretical results using cross-country data. While dismissal regulations increase the share of informal employment, severance payments to workers do not.

The empirical exercise is constrained by the lack of availability of good data on the informal sector.

The analysis of the alternative labor market regulations analyzed in this paper in the presence of risk-averse workers is an original contribution to the literature.

This paper aims to theoretically find out whether investments could close the formal-informal wage gap in India.

The paper builds a general equilibrium model of a developing economy with a large informal sector and a capital-intensive formal sector with sector-specific capital and incorporates endogenous demand.

With homothetic preferences, a small initial wage premium and elastic relative demand, investment in the formal sector is likely to close the wage gap, but the gap persists with non-homothetic preferences. However, investment in the informal sector is unlikely to close the wage gap with either type of preferences.

Though labour market distortions in developing economies leading to a formal-informal wage gap are well-documented in the development literature, little attention has been given to the question of whether such a gap would close over time.

Enterprises in developed and developing world environments often begin life in the informal sector operating outside the purview of government oversight. Sectoral firm change, however, from the informal to the formal sector is not well studied. The purpose of this paper is to answer the following research question: “What firm-level markers help explain the movement of firms from the informal to the formal sector?”

Data from 719 urban formal enterprises included in the 2016 El Salvador Enterprise Survey undertaken by the World Bank forms the basis of the empirical analyses. The survey questionnaire comprehensively encompasses business practices and performance and the overall business environment.

Multivariate results reveal location, firm maturity, problems with land acquisition, a line of credit or active business loan, extortion by street gangs and practices of informal competitors increase the odds of informal firms becoming formal enterprises. Lessening the odds of once informal firms moving to the formal sector include the lack of access to public utilities, visitation by tax officials, formation as a corporation, bank accounts, number of employees and time spent focused upon government regulations.

Contextualized within the national setting of El Salvador, the integration of informal enterprises into the formal economy and related public policy implications of informal firm regularization are discussed.

Las empresas de países desarrollados y en desarrollo a menudo comienzan su vida en el sector informal y que opera fuera del ámbito de la supervisión gubernamental. Sin embargo, el cambio de empresas sectoriales, desde el sector informal al formal, no está bien estudiado. Este artículo busca responder la siguiente pregunta de investigación: “¿Qué marcadores de nivel de empresa ayudan a explicar el movimiento de las empresas del sector informal al formal?”

Los datos de 719 empresas formales urbanas incluidas en la encuesta de empresas de El Salvador de 2016 realizada por el Banco Mundial constituyen la base de los análisis empíricos. El cuestionario de la encuesta abarca de manera integral las prácticas y el rendimiento empresarial y el entorno empresarial general.

Los resultados multivariables revelan la ubicación, la madurez de la empresa, los problemas con la adquisición de tierras, una línea de crédito o un préstamo comercial activo, la extorsión por parte de pandillas callejeras y las prácticas de competidores informales aumentan las probabilidades de que las empresas informales se conviertan en empresas formales. Disminuir las probabilidades de que una vez las firmas informales se muden al sector formal incluyen la falta de acceso a los servicios públicos, las visitas de los funcionarios tributarios, la formación como corporación, las cuentas bancarias, el número de empleados y el tiempo dedicado a las regulaciones gubernamentales.

En el contexto nacional de El Salvador, se analiza la integración de empresas informales en la economía formal y se discuten las implicaciones de las políticas públicas relacionadas con la regularización de empresas informales.

The purpose of this paper is to investigate the characteristics of the ex-garment workers that have turned to self-employment either in the formal or informal sector in the wake of the termination of the multi-fibre arrangement, which led to job losses. This move has given rise to a new community of entrepreneurs in the Mauritian landscape. Hence, this paper tells a story of women empowerment to disempowerment and finally the struggle for them to get re-empowered. This study also shows that there has been a limit to which self-employment led to empowerment for these women as their incomes are low, and they remain in vulnerable positions.

The study analyses the transformation of a sample of ex-garment workers into new entrepreneurs. The analysis in this paper rests on survey data collected from 92 ex-garment female workers, who are presently self-employed in either the formal or informal sectors, in different parts of Mauritius.

The findings reveal that the self-employed women in the sample, who are also ex-garment female workers, are essentially necessity-driven entrepreneurs. Most of them have only basic primary education and seem to have no other choice than to engage either formally or informally in similar activities, given their prior knowledge and experience in the textile and clothing industries. The authors also find evidence of statistically significant differences across age, marital status and household size between those women in the informal sector compared to those engaged in the formal sector.

Resource constraints aside, this study could benefit from a larger sample cutting across many other sub-sectors. So far, the results of this study are only applicable to the specific sample studied. In terms of implications, the study finds that the relevant authorities should come up with targeted policies to help these women and address and alleviate the barriers that they face.

This study provides an insight to help explain why a large group of women have gone into self-employment in Mauritius in the past 10 years. The authors find that self-employment has provided an empowerment outlet for these women so that they can financially contribute to their household income. From the policy-making perspective, this implies that it is important for the government to support the activities of these self-employed women with conducive policies.

The study helps to advance knowledge on self-employed women in a small vulnerable island economy context. Given that the transition from being employed to unemployed and then the move to self-employment happened in a rather short span of time for these women, the contribution of this study is also to put at the forefront the industrial changes and the individual coping strategies.

The need for a firm’s business strategy to be responsive to the institutional contexts of emerging markets is well-established in the literature. Often, however, strategic responsiveness is impeded by defining institutional contexts as country-level aggregations (macro-level) and glossing over sub-national variations (micro-level). The purpose of this paper is to investigate micro-level contexts that can defy macro-level assumptions of economic rationality.

As a research site, the motivations of street vendors in Mexico City are analyzed in terms staying in one sub-national context, the informal sector, as opposed movement to another, the formal sector. Unanticipated reluctance to move from one context to another is defined as stickiness.

Sub-national institutional contexts are found to be sticky, with less movement between informal and formal sectors than would have been anticipated. Unexpectedly, it is found that a significant number of street vendors prefer the hardship of the informal sector to the relative security of the formal sector.

International business research makes assumptions about the growth narrative of emerging markets, often characterizing a growing middle class as a rising tide that lifts all boats. In terms of further research on adapting strategy, however, assumptions of rational expectations ought to be tempered, as demonstrated by the stickiness of the informal sector.

A contribution is made to the international business literature by showing that macro-level assumptions about institutional context based on rational expectations of wealth-maximizing behavior in emerging markets may result in an incomplete view of institutional context. Ultimately, adaptation of strategy could be impaired as a result.

Small businesses growth has become an important area of study in the field of entrepreneurship. This paper aims to extend the inquiry by investigating whether there is a significant difference in growth between firms from the formal sector and the informal sector in the least developing countries (LDCs), particularly Tanzania.

A survey strategy as well as non-probability sampling are used. The sampling included 50 formal and 61 informal small businesses from the furniture industry. Data collected were evaluated using chi square and compounded annual growth rate (CAGR) techniques.

The results indicate that firms from the formal sector do not grow faster than firms from the informal sector. on the contrary, our tests reveal that firms from the informal sector predominantly grow faster than firms from the formal sector.

The study was conducted in Tanzania which is just one of the 48 LDCs in the world. Second, the literature that is used predominantly applies to developed countries. Third, the field work dependent on the respondent’s perception. Finally, change of measurement scale from five to three is ought to have contributed to mixed findings.

The overall implications are that external factors like inadequate regulatory tax systems may affect growth of formal small businesses and thus influence market opportunities for informal small businesses. Further, internal factors like inefficiencies of workers from formal enterprises may affect growth and therefore create more opportunities for informal enterprises.

Exploring differences between firms from the formal sector and the informal sector, and the way five scales were aggregated into three scales in the methodology.

In the last decade, Argentina has experienced a considerable decline in informal employment and wage dispersion. This paper extends a search model with exogenous human capital accumulation to include the informal sector. The model is parametrized to match Argentinian data between 1996 and 1998 – before the onset of the declining trend – and it is used to investigate the contribution of labor market measures to the falling informality, unemployment, and wage dispersion. The findings indicate that institutional factors did not contribute to the positive labor market trends observed; on the contrary, results show that higher severance pay and minimum wages increase informality and that the introduction of unemployment assistance contributed to the spread of informal contracts across the work force. Further, I find that compliance with minimum wage regulation strongly affects the final impact of these policies. While non perfect compliance might reduce unemployment, it reinforces the incentives of workers to move to the informal sector.

This study aims to explore “what impact does competition from informal enterprises have on formal firms” within the Chinese economic and business environment.

The paper opted for an exploratory study utilizing the cross-sectional survey data “2012 China Enterprise Survey” conducted by the World Bank. The survey is composed of approximately 200 business-related questions across the spectrum of business operations. In all, 2,700 privately owned Chinese firms are included in the logistic regression analysis.

Results show the impact of informal firm competition upon formal firms in China are influenced by geographical location, industry sector, ownership profile, governmental ownership, online presence and the extent of obeying labor regulations or the time spent in handling the governmental regulatory environment. There is a competitive and complementary simultaneous intertwined relationship between formal and informal economy. It occurs in a formal economy not fully divorced from the structural inertia of the planned economy as it transitions to a market-based economy.

This paper extended the assumption of institutional theory and presented it as a dynamic view of the evolution of organizations. It contributes by offering a simultaneous dual relationship between the formal and informal economy. It also adds one more potential feature of populations in the population ecology theory.

This exploratory paper empirically examines the impacts of informal sector enterprises on formal sectors firms in China and proposes a dual force effect of the informal economy to the formal economy given the current Chinese institutional environment. The study also provides a platform for further research on the interactions between the formal and informal sectors in emerging markets.