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Literature Review: The Informal Economy

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Understanding the Determinants of Economic Informality in Paraguay

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Abstract

This chapter reviews the literature on economic informality. It first provides a review of the informality literature more generally and then a more focused review of informality in Latin America, including various perspectives (legalist, structuralist, Marxist, microenterprise). We offer a comprehensive review of previous work on informality in Paraguay, including Programa Regional del Empleo para América Latina y El Caribe (PREALC)’s first major study of informality in the region (1973 in the Metropolitan Region of Paraguay). Lastly, the chapter introduces the various measures or proxies of informality utilized in our analyses.

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Notes

  1. 1.

    According to PREALC, the employment absorption gap in Paraguay at the time (1962–1972) was 2.1%, where new job entrants entered the job market at a rate of 4.1% while the economy only grew at a 2.0% rate.

  2. 2.

    The PREALC survey included the greater Asunción metropolitan (urban) area. PREALC surveyed 1000 homes with 6400 persons and 4600 persons age 12 or more (PREALC 1973).

  3. 3.

    The informal-formal earnings gap for 2018 is larger than that found in the 1973 study. Using three proxies for informality (i.e., firm registration, enrollment in social security, and firm size [5 employees or less]), the average 2018 national wage gap ranges between 44.3% and 57.5%, where informal earnings are much lower on average than formal earnings.

  4. 4.

    Of note, the household economic census of 1997/1998 was the first to include information in which informality could be extracted outside of the PREALC survey from 1973.

  5. 5.

    The monthly contribution rates as of 2018 are 9.0% for employees and 16.5% for employers (totaling 25.5%) and are slightly higher for financial entities (PWC 2019). Public sector workers contribute 16% of their wage to their pension with no corresponding health benefit.

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Authors and Affiliations

  1. Department of Management, Central Michigan University, Mount Pleasant, MI, USA

    Michael J. Pisani

  2. Centro de Análisis y Difusión de la Economía Paraguaya, Asunción, Paraguay

    Fernando G. Ovando Rivarola

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  1. Michael J. Pisani
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Correspondence to Michael J. Pisani .

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Pisani, M.J., Ovando Rivarola, F.G. (2019). Literature Review: The Informal Economy. In: Understanding the Determinants of Economic Informality in Paraguay. Palgrave Pivot, Cham. https://doi.org/10.1007/978-3-030-24393-7_2

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