Informal Labour and Credit Markets: A Survey.

Contents

1 Introduction 1

2 Literature on empirical evidence 3

2.1 How do we measure the informal economy? .................. 3

2.2 The size of the informal economy ........................ 5

2.3 Causes and impact of informality ........................ 7

2.4 Main stylized facts ................................ 7

2.4.1 Informal employment .......................... 7

2.4.2 Informal credit markets ......................... 12

3 Informality in the labour market: early contributions 14

4 Informality and labour market frictions 15

4.1 The intersectoral margin for workers and firms ................ 16

4.2 The intersectoral margin for workers ...................... 17

4.3 The intrafirm margin and the occupational choice ............... 18

5 Informal credit markets 19

5.1 Informal credit market, asymmetric information and formal-informal linkages 21

5.1.1 Horizontal linkages ............................ 21

5.1.2 Vertical linkages ............................. 22

5.2 Informal credit markets and trading frictions ................. 23

5.3 Credit-constrained entrepreneurs, informal credit and labour markets linkages 24

5.4 Informal credit markets and monetary policy ................. 25

6 General Equilibrium models of informality 26

6.1 Informality in Computable General Equilibrium models ........... 27

6.2 Informality and Dynamic General Equilibrium models with wage flexibility 27

6.3 Endogenous growth and informality ...................... 30

6.4 New Keynesian models with informal labour markets ............. 31

7 Conclusions 33