A study on informality in Argentinean provinces

Villarreal y Alicante

Encuentro; Arnoldshain Seminar XVII and X Meeting on International Economics; 2022

Universitat Jaume I y Universidad de Alicante

Regional differences in Argentina are very important. In this paper, a macroeconomic approach is followed to analyze the main determinants of labour informality in the regional labour markets.From a theoretical viewpoint, one may find two main perspectives: (a) a structuralist; and (b) an institutionalist. The difference between the two approaches is basically what each one believes causes informality. In the institutionalist view, informality is linked with evasion of legal norms, considering that the fiscal burden inefficiencies in the public sector act as a stimulus for not complying with institutional rules, whereas the structuralist perspective links labour informality with poverty, marginality, low productivity, low level of qualifications and restrictions to the access of capital. To study the determinants of labour informality in Argentina we use a data panel that includes the 24 provinces of the country, based on information collected in the 33 urban centres surveyed in the Permanent Household Survey (EPH, INDEC) during the period 2005-2018. We use the Generalized Method of Moments to deal with endogeneity issues. The model tests the hypothesis that both perspectives are relevant. On the one hand, for proxies of structuralist variables we use: the Active / Inactive rate, Population with tertiary and university education/ employed population between 25-65 years, Proportion of companies with less than nine employees, Provincial unemployment rate, Proportion of employment in sectors with higher labour market informality and dummies that identify jurisdictions and their integration into world markets, and the effects of migrations from neighbouring countries. On the other hand, concerning the institutionalist vision, the following variables are used: Public employees per 1.000 inhabitants and Labour lawsuits per 1.000 inhabitants.This study contributes to the existing literature in two main ways. First, we build a 13 years panel for Argentinean provinces that allows us to characterize labour informality over time. Second, we explicitly take into account the double causality between unemployment and informality, and the potential simultaneity problem among public labour and informal labour with Argentinean data.Our main result is that GMM estimations highlight the importance of both approaches, supporting our initial hypothesis. We find evidence that in the period variables from both views have a significative influence on labour informality. Among the structural variables that influence labour market informality are the education level, unemployment rate, share of inactive to active population and the share of small firms, whereas the main institutional variable that exerts influence in the labour market is the share of public employment. There seems to be no connection with the insertion of the jurisdiction in world markets (which would reflect a greater presence of tradable goods) or with the (border) location of the area.