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Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 2009:10:
Informal Employment and the Role of Regional Governance

Erik Jonasson ()

Abstract: The aim of this paper is to provide an explanation to why the degree of informal employment may vary substantially between different regions within a country. In Brazil, 45% of workers in the urban labor force are employed informally. The degree of informal employment, however, varies substantially across regions, with some cities having 20% and others having 80% or more of their labor force in the informal sector.The hypothesis assessed here is that the quality of local governance—or government effectiveness—affects the decisions of workers and businesses as to whether to participate in the formal or the informal sector. The empirical analysis, based on data from 5500 Brazilian municipalities, shows that informal employment is lower in regions with better governance, higher average education, and with a relatively large manufacturing sector. Endogeneity concerns are addressed as part of a series of robustness checks of the results.

Keywords: informal employment; government effectiveness; Brazil; Latin America; (follow links to similar papers)

JEL-Codes: J21; J24; O17; R23; (follow links to similar papers)

17 pages, April 26, 2009, Revised September 27, 2010

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This paper is published as:
Jonasson, Erik, (2011), 'Informal Employment and the Role of Regional Governance', Review of Development Economics, Vol. 15, No. 3, pages 429-441



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