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English Summary.). Report No. 36092-AR ARGENTINA Labor Market Study Public Disclosure Authorized Informal Employment in Argentina: Causes and Consequences March 27, 2008 Argentina, Chile, Paraguay, Uruguay Country Management Unit Latin America and the Caribbean Region Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank CURRENCY EQUIVALENTS Currency Unit = Argentine Peso (A$) 1 US Dollar = A$3.16 1 Peso = US$0.31675 (As of March 27, 2008) FISCAL YEAR January 1 to December 31 ABBREVIATIONS AND ACRONYMS BCRA Central Bank of Argentine Republic CONADE National Council of Development (Consejo National de Desarrollo) ENAMIN Nacional Microenterprise Survey of Mexico (Encuesta Nacional de Micronegocios de México) EPH Permanent Household Survey (Encuesta Permanente de Hogare)s EPHC Permanent Continuous Household Survey (Encuesta Permanente de Hogares Continua) GBA Greater Buenos Aires GDP Gross Domestic Product IDB Inter-American Development Bank ILO International Labour Organization INDEC National Institute of Statistics and Census (Instituto Nacional de Estatisticas y Censos) LAC Latin America and the Caribbean MTESS Ministry of Labor, Employment and Social Security NEA Northeast Region NOA Northwest Region NGO Non-Governmental Organization OLS Ordinal Least Squares PPP Purchasing Power Parity PREALC Regional Employment Program for Latin America and the Caribbean (Programa Regional de Empleo para América Latina y el Caribe) RRR Relative Risk Ratio SIC p56 Standard Industry Codes SIEMPRO Monitoring and Evaluation Unit, Ministry of Social Development (Sistema de Información Monitoreo y Evaluación de Programas Sociales) TFP Total Factor Productivity VAT Value Added Tax Vice-President Pamela Cox Country Director Pedro Alba Sector Director Marcelo Giugale Sector Managers Jaime Saavedra/Helena Ribe Lead Economist James Parks Country Sector Leader, HD Hermann A. Von Gersdorff Task Managers Omar Arias/Rafael Rofman TABLE OF CONTENTS EXECUTIVE SUMMARY AND OVERVIEW ..........................................................................................i 1. INFORMAL EMPLOYMENT, POVERTY AND INEQUALITY IN ARGENTINA ......................21 Informality: Definitions in the International Context.............................................................................23 Empirical Implementation of Definitions of Informality .......................................................................25 International Comparisons and the Social Protection Lens in a Regional Perspective...........................29 Evolution of Informal Salaried Employment and Independent Worker in Urban Argentina .................33 Poverty and Informal Employment ........................................................................................................37 Inequality and Informal Employment ....................................................................................................40 The Evolution of the Profile of Informal Employment in Argentina .....................................................45 2. EXPLAINING TRENDS IN INFORMAL EMPLOYMENT IN URBAN ARGENTINA................47 Economic Structure and Demographic Factors ......................................................................................49 Macroeconomic Policy and Privatization...............................................................................................54 Trade Liberalization ...............................................................................................................................62 Regulations, Payroll Taxes and Institutions ...........................................................................................63 3. INFORMAL WORKERS IN GREATER BUENOS AIRES: PROFILE, MOTIVATION AND TRANSITION..............................................................................................................................................79 Informal workers: Characteristics and Determinants .............................................................................80 Motivations and Reasons for Being Informal.........................................................................................88 Patterns of Transitions In and Out Formal/Informal Employment.........................................................93 Final Comments .....................................................................................................................................98 4. INFORMALITY, EARNINGS AND WELFARE IN URBAN ARGENTINA ..................................99 The Heterogeneity of Informal Earnings in Urban Argentina..............................................................100 Do All Informal Workers Receive Equal Pay for Equal Work?...........................................................103 Informality and Self-Rated Welfare .....................................................................................................114 5. INFORMALITY AND SOCIAL PROTECTION IN ARGENTINA................................................119 Social Protection in Argentina .............................................................................................................120 Social Protection in a Context of Labor Informality ............................................................................124 Conclusion............................................................................................................................................126 6. CONCLUSIONS AND CONSIDERATIONS FOR PUBLIC POLICY ...........................................129 REFERENCES ..........................................................................................................................................137 ANNEXES..................................................................................................................................................141 LIST OF ANNEXES Annex 1.1: Explaining Changes in Income Distribution ............................................................................141 Annex 1.2: The Evolution of the Profile of Urban Informal Employment..................................................144 Annex 2.1: Changes in Employment Law in Argentina in the 1990s..........................................................152 Annex 2.2: The Microsimulation Analysis of Changes in the Informal Salaried Rate................................154 Annex 3.1: The Profile of Informal Employment in (all of) Argentina.......................................................158 Annex 3.2:Detailed Results from Analysis of Special EPH Informality Module........................................168 Annex 3.3: The Permanent Household Survey Informal Sector Module: ...................................................174 Annex 4.1: Descriptive Statistics.................................................................................................................184 LIST OF TABLES Table 1: Summary Evaluation of Importance of Potential Explanations of the Increase in Informality in Argentina During the 1980s and 1990s.............................................................................................6 Table 2: Decomposition of Changes in the Percentage of Employees Who Are Informal, Urban Argentina, 1993-2000 ........................................................................................................................................7 Table 3: Impact of Informal Work on Self-Rated Wellbeing in Argentina, 1997 ........................................14 Table 1.1: Employment Benefits are Highly Correlated: Percentage with A that Receive Benefit B...........27 Table 1.2: Decomposition of Levels of Inequality, Urban Argentina, 1993, 2000, 2003, and 2005 ............41 Table 1.3: Decomposition of Changes in Income Equality in Between 1993 and 2003, Urban Argentina...42 Table 1.4: How Much Do Employment Category Changes Matter for Inequality? Decomposition of the Increase in the Gini Coefficient, 1993-1998................................................................................43 Table 2.1: Decomposition of the Increase in the Informal Salaried Employment Rate, (Fraction of All Employees Who are Informal) Greater Buenos Aires 1980-2000...............................................51 Table 2.2: Decomposition of the Increase in the Informal Salaried Employment, (Fraction of All Employees Who are Informal) Urban Argentina 1993-2000.......................................................53 Table 2.3: Privatization of Federal Publicly Owned Enterprises, 1990-1999................................................59 Table 2.4: Employment in Privatized Firms as a Proportion of Total Employment and Change in Total Employment ................................................................................................................................60 Table 2.5: Monthly Minimum Wage as a Percentage of Median, For All Workers and For Subgroups.......72 Table 3.1: Informality Definition ..................................................................................................................81 Table 3.2: Distribution of Formal/Informal Workers According to Unit of Production................................83 Table 3.3: Are Independent Intrinsically More Inclined to be Uncover? Correlation Between Unobservable Factors that Affect the Propensity of Being Salaried and Contributing to the Social Security System .........................................................................................................................................88 Table 3.4: Informal Employment and
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