Good jobs and bad jobs for Indonesia's informal workers

Abstract:

There is consistent evidence that informal workers face a plethora of poor outcomes, ranging from a lack of social protection, poor working conditions, and low average incomes. However, these findings are based on the assumption that informal workers are homogeneous. In this paper, we deviate from this view by accounting for the possibility of “winners” and “losers” among informal workers. Using unconditional quantile regressions with fixed effects, we are able to estimate the formal‐informal wage gap at different segments of the earnings distribution. While the evidence does confirm the existence of a substantial earnings penalty for many informal workers, there is also a group that earns roughly similar incomes as formal workers. The evidence is consistent with Fields’ (1990; 2005) model of a heterogeneous informal sector.