Informal Labour and Credit Markets: A Survey.

are procyclical, but less volatile. As before, Bosch (2006, 2007) attempt to develop a
theoretical framework to capture those stylized facts. Even though informality is mainly
concentrated in the non-tradable sector, the author claims there is a need to model the
change of the formal employment share within industries and occupation. This is in
contrast with the idea that a change in the share of informality is due to sectorial changes
as discussed in the NCEUS report whose findings point to an increasing trend towards
more flexibility of employment, outsourcing and the growth of telecommunication and IT
services as a possible explanation of the increasing share of informal employment in India.

Maloney (1999, 2004) provide evidence against the segmentation assumption. Maloney
(1999) shows that despite a very large informal sector, labour markets are mobile and
wages are flexible. Maloney (2004) shows that in many Latin American countries the
informal sector is mostly voluntary. Finally, the evidence for Latin American countries
shows that the informal labour market is ultimately heterogeneous and composed by, both
self-employed and salaried workers.

Stylized facts on the cyclical behavior of informality are ambiguous. Normally, the
informal sector expands during downturns (see previous stylized facts), but there is also
evidence of pro-cyclical movements of the informal sector. Fiess et al. (2006) and Perry
et al. (2007) provide a theoretical explanation in terms of asymmetric shocks between
tradable and non-tradable sectors.

Empirical evidence on income and education between sectors point to the following
stylized facts. Mastalioglu and Rigolini (2006) show that

• there is a negative correlation between the informal sector employment and education
within countries as well as between informal employment and average education
attainment across countries (SF 7)

Albrecht et al. (2008), described in section 4.2, provides an interesting framework to
explain the facts above described. As the authors point out, their model is useful to
explain the dynamics of the informal employment in many Latin American countries where
it appears that the informal sector is an unregulated labour market in which low ability
workers decide to work mainly with the status of self-employed. A similar view is adopted
by Boeri and Garibaldi (2005) in section 4.1. Micro-level data for Italy show that shadow
jobs are filled mainly by unskilled and lower educated workers (see SF 7). Cross-county

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