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Flexible labor regulations and informality in Egypt

Flexible labor regulations and informality in Egypt
Flexible labor regulations and informality in Egypt
Do more flexible labor market regulations reduce informal employment in formal firms? This paper examines the effects of changes in labor regulations on the incidence of formal employment. Using the case of Egypt, we study the effects of the introduction of more flexible labor regulations in 2003 on the probability that non-contractual workers will be granted a formal employment contract. To identify the effect of the law and control for potential confounding factors, we use a difference-in-difference estimator that measures the difference in the pre and post-law probability of obtaining a formal contract across a treatment group of non-contractual workers initially employed in formal firms and a comparison group of non-contractual workers initially employed in informal firms. The latter serve as a useful comparison group since informal firms are unlikely to formalize as a result of the law, so that the only way their workers can become formal is to move to another firm. Our findings show that the passage of the new labor law did in fact increase the probability of transitioning to formal employment for non-contractual workers employed in formal firms by about 3-3.5 percentage points, or the equivalent of at least a fifth of informal workers in formal firms.
1363-6669
962-984
Wahba, Jackline
03ae9304-c329-40c6-9bfc-d91cfa9e7164
Assaad, Ragui
4850afd6-4705-49cd-85bc-a81e8fc4862f
Wahba, Jackline
03ae9304-c329-40c6-9bfc-d91cfa9e7164
Assaad, Ragui
4850afd6-4705-49cd-85bc-a81e8fc4862f

Wahba, Jackline and Assaad, Ragui (2016) Flexible labor regulations and informality in Egypt. Review of Development Economics, 21 (4), 962-984. (doi:10.1111/rode.12288).

Record type: Article

Abstract

Do more flexible labor market regulations reduce informal employment in formal firms? This paper examines the effects of changes in labor regulations on the incidence of formal employment. Using the case of Egypt, we study the effects of the introduction of more flexible labor regulations in 2003 on the probability that non-contractual workers will be granted a formal employment contract. To identify the effect of the law and control for potential confounding factors, we use a difference-in-difference estimator that measures the difference in the pre and post-law probability of obtaining a formal contract across a treatment group of non-contractual workers initially employed in formal firms and a comparison group of non-contractual workers initially employed in informal firms. The latter serve as a useful comparison group since informal firms are unlikely to formalize as a result of the law, so that the only way their workers can become formal is to move to another firm. Our findings show that the passage of the new labor law did in fact increase the probability of transitioning to formal employment for non-contractual workers employed in formal firms by about 3-3.5 percentage points, or the equivalent of at least a fifth of informal workers in formal firms.

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Accepted/In Press date: 26 September 2016
e-pub ahead of print date: 2 November 2016
Organisations: Economics

Identifiers

Local EPrints ID: 402160
URI: http://eprints.soton.ac.uk/id/eprint/402160
ISSN: 1363-6669
PURE UUID: 2715baf0-52f4-4ce8-afe2-c4de6c077bd2
ORCID for Jackline Wahba: ORCID iD orcid.org/0000-0002-0002-3443

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Date deposited: 03 Nov 2016 13:35
Last modified: 16 Mar 2024 02:50

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Contributors

Author: Jackline Wahba ORCID iD
Author: Ragui Assaad

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