Transformations  in
Business & Economics

WHO BENEFITS MOST FROM INFORMAL EMPLOYMENT? EVIDENCE FROM CHINA¹¹
Kangyin Lu, Si Chen, Liwen Jia

ABSTRACT: Using data from the Chinese General Social Survey (CGSS) between 2013 and 2017, this paper explores the impact of choosing informal employment on hourly wages and its potential mechanisms. The results of OLS and 2SLS show that formal employment has an hourly wage advantage over informal employment. And the hourly wage premium associated with formal employment increases with age, which is further enhanced by formal education. The marginal treatment effects support the view of a heterogeneous informal labour market, with those workers most likely to choose informal employment also benefiting most from informal employment. Furthermore, both overwork and internet literacy may play a role in understanding the two-tier informality in the Chinese labour market. Finally, the policy-relevant treatment effects suggest that a 2% increase in informality would almost double the hourly wage gap, further worsening the economic situation of informal workers. Our analysis calls for relevant departments to formulate inclusive, supportive, and flexible employment policies.

KEYWORDS:  informal employment, formal employment, hourly wages, marginal treatment effect, policy-relevant treatment effect.

JEL classification:  D31, E24, J21

¹¹Acknowledgments:  This research was supported by the National Natural Science Foundation of China (No.71973022).