Formal versus Informal Labor Market Segmentation in Iran

Authors

Faculty of Economics, University of Tehran, Tehran, Iran

Abstract

This article examines whether there is a wage gap premium in the formal sector versus the informal sector of the Iranian labor market. We used household survey data conducted by the Statistical Centre of Iran for 2001, 2006, 2011, and 2016 to investigate the characteristics of the informal sector as well as differentials in wage structures between sectors. The findings indicate that a significant part of the Iranian labor force is employed in the informal sector, and this sector shows different behavior from the formal sector in determining wages. It has also been concluded that there is a wage gap between the formal and informal sectors, and this gap after a minimal increase in 2006, narrowed over time.

Keywords


Akbari, M. A., & Leylaz Mehrabadi, S. (2010). The Impact of the Third Economic Plan (1962-1968) in Agriculture of Iran. Iran History, 65/5, Retrieved from https://irhj.sbu.ac.ir/index.php/index/article_94570_8e7c851d8871cd372d08f501878cc8bc.pdf
Aydin, E., Hisarcikilar, M., & Ilkaracan, I. (2010). Formal versus Informal Labor Market Segmentation in Turkey in the Course of Market Liberalization. Topics in Middle Eastern and North African Economies, 12, 1-43.
Ayyoub, M., & Gillani, D. Q. (2019). What Determines Employment in the Formal and Informal Sectors of Pakistan? Primary Data Insights from Lahore. NICE Research Journal, 12(2), 109-130.
Badel, A., & Pena, X. (2010). Decomposing the Gender Wage with Gap with Sample Selection Adjustment: Evidence from Colombia. Revista de Análisis Económico, 25(2), 169-191.
Baltagi, B. H., Baskaya, Y. S., & Hulagu, T. (2013). How Different are the Wage Curves for Formal and Informal Workers? Evidence from Turkey. Papers in Regional Science92(2), 271-283.
Bourguignon, F., Fournier, M., & Gurgand, M. (2007). Selection Bias Corrections Based on the Multinomial Logit Model: Monte Carlo Comparison. Journal of Economic Surveys, 21(1), 174-205.
---------- (2002). Selection Bias Correction Based on the Multinomial Logit Model, 2002-04. Retrieved from INSEE.
Bromley, R. (1978). The Urban Informal sector: why is it worth discussing? World Development, 6, 1033-1039.
Charmes, J. (2012). The Informal Economy: Definitions, Size, Contribution, Characteristics, and Trends. Journal of Applied Economic Research, 6(2), 103-132.
El-Haddad, A., & Gadallah, M. M. (2021). The Informalization of the Egyptian Economy (1998–2012): A Driver of Growing Wage Inequality. Applied Economics53(1), 115-144.
Feige, E. L. (1990). Defining and Estimating Underground and Informal Economies: The New Institutional Economics Approach. World Development18(7), 989-1002.
Gindling, T. H. (1991). Labor Market Segmentation and the Determination of Wages in the Public, Private-formal, and Informal Sectors in San Jose, Costa Rica. Economic Development and Cultural Change39(3), 585-605.
Gindling, T. H., Hasnain, Z., Newhouse, D., & Shi, R. (2020). Are Public Sector Workers in Developing Countries Overpaid? Evidence from a New Global Dataset. World Development126, 104-737.
Heckman, J., & Hotz, V. J. (1986). The Sources of Inequality for Males in Panama s Labor Markets. The Journal of Human Resources, 21(4), 507-542.
Lee, L. (1983). Generalized Econometric Models with Selectivity. Econometrica, 51(2), 507-512.
Lehmann, H., & Pignatti, N. (2018). Informal Employment Relationships and the Labor Market: Is There Segmentation in Ukraine? Journal of Comparative Economics46(3), 838-857.
Lewis, W. A. (1954). Economic Development with Unlimited Supplies of Labor. The Manchester School22(2), 139-191.
Maloney, W. F. (1999). Does Informality Imply Segmentation in Urban Labor Markets? Evidence from Sectoral Transitions in Mexico. The World Bank Economic Review13(2), 275-302.
Marcouiller, D., de Castilla, V. R., & Woodruff, C. (1997). Formal Measures of the Informal-sector Wage Gap in Mexico, El Salvador, and Peru. Economic Development and Cultural Change45(2), 367-392.
Nguimkeu, P. (2013). A Structural Econometric Analysis of the Informal Sector Heterogeneity. Journal of Development Economics, 107, 175–191.
Oaxaca, R. (1973). Male-female Wage Differentials in Urban Labor Market. International Economic Review, 14(3), 693-709.
Oaxaca, R. L., & Ransom, M. R. (1994). On Discrimination and the Decomposition of Wage Differentials. Journal of Econometrics61(1), 5-21.
Onyishi, C. J., Ejike-Alieji, A. U., Ajaero, C. K., Mbaegbu, C. C., Ezeibe, C. C., Onyebueke, V. U., Mbah, P. O., & Nzeadibe, T. C. (2021). Covid-19 Pandemic and Informal Urban Governance in Africa: A Political Economy Perspective. Journal of Asian and African Studies56(6), 1226-1250.
Puhani, P. (2000). The Heckman Correction for Sample Selection and its Critique. Journal of Economic Surveys14(1), 53-68.
Tansel, A., Keskin, H. I., & Ozdemir, Z. A. (2020). Is There an Informal Employment Wage Penalty in Egypt? Evidence from Quantile Regression on Panel Data. Empirical Economics58(6), 1-49.
Train, K. E. (2009). Discrete Choice Methods with Simulation. Cambridge: Cambridge University Press.
Trost, R., & Lee, L. (1984). Technical Training and Earnings: A Polytomous Model with Selectivity. Review of Economics and Statistics, 66, 151-156.