The Effects of Public Policies on Informal Labor: An Analysis for Low-Skilled Workers

Abstract

In this dissertation I empirically assess how public policies such as regulations and taxes influence workers' employment on the informal sector of the economy - particularly in low-skilled occupations with a high female presence. Informal employment is characterized by not paying in full into the national pension scheme and generally not being affected by many other aspects of the regulatory or tax system. As such I contribute to the literature on the institutional aspects of labor informality and on integrated labor markets. The study sheds light on different aspects of the labor market from a gender perspective, which can have short-term implications in terms of tax collection or access to certain benefits for workers, and also long-term effects in the inter generational transmission of poverty and inequality, as children who are raised in informal households have less access to opportunities.

In the first analytical chapter I show that the introduction of Argentinean national Law 26.063 of 2005, which provided employers of domestic workers with a tax deduction for having their workers on-the-books, increased domestic workers’ formalization rates. I do so through a triple difference (difference-in-difference-in-difference) strategy which exploits geographic variation in the intensity of the law based on differences in the share of potential household employers that could benefit from the deduction according to their income level, and uses a group of similar low-skilled females as control. In the second chapter, I show that the fear of losing welfare payments under a formal work arrangement is the mechanism behind the difference in registration for domestic workers with children under and over 18 years old in Argentina after the introduction in 2013 of a new regulation for formal domestic workers giving them access to extended mandated benefits. I do so through a difference-in-difference approach that exploits variation in the age of a domestic worker's youngest child. In the last chapter, I explore the effect of a stricter nail technician's occupational licensing requirement in the United States on two proxies for informality by exploiting state level variations in the number of mandated training hours. Through an instrumental variable (IV) approach using characteristics of the state-level Board of Cosmetology as instruments I found that stricter requirements increase the probability a nail technician will be self-employed, but not of working without a license.