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The Remains of Informality in the Formal Sector: Social Networks and Wages in Senegal's Labor Market

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  • Berardi, Nicoletta
Abstract
We develop a theoretical framework that considers the role played by moral hazard and the diversity of networks and cultures in the choice of hiring channel. Our model explains why either informal or formal hiring channels are preferred and either positive or negative wage differentials emerge for workers hired through informal channels, depending on circumstances. We show that, conditional on being employed, in favoritism contexts social networks are likely to be adopted as hiring channels for unskilled jobs and to result in wage penalties and the more so the stronger the ties, while otherwise the opposite happens. We then estimate an endogenous switching model for the case of Senegal's manufacturing formal sector and we find, consistently with our theoretical predictions in case of favoritism, that informal hiring channels are preferred to full unskilled vacancies and are associated with a wage penalty. Moreover, the probability of having been hired through a social network and the absolute value of wage penalties are increasing with the strength of ties.

Suggested Citation

  • Berardi, Nicoletta, 2009. "The Remains of Informality in the Formal Sector: Social Networks and Wages in Senegal's Labor Market," TSE Working Papers 09-129, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:22252
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    Cited by:

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    2. Berardi, Nicoletta & Seabright, Paul, 2011. "Professional Network and Career Coevolution," TSE Working Papers 11-258, Toulouse School of Economics (TSE).
    3. Martina Rebien & Michael Stops & Anna Zaharieva, 2020. "Formal Search And Referrals From A Firm'S Perspective," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(4), pages 1679-1748, November.
    4. Berardi, Nicoletta & Lalanne, Marie & Seabright, Paul, 2018. "Professional networks and their coevolution with executive careers: Evidence from North America and Europe," SAFE Working Paper Series 243, Leibniz Institute for Financial Research SAFE.
    5. Intan Nurpratiwi & Syamsurijal Abdul Kadir & Yunisvita Yunisvita, 2019. "Factors that Influence Wages Differences in Formal Sector on Male and Female Workers in Palembang City," Business & Management Compass, University of Economics Varna, issue 4, pages 327-343.
    6. Bilyk Olga & Sheron Iuliia, 2012. "Do informal networks matter in the Ukrainian labor market?," EERC Working Paper Series 12/11e, EERC Research Network, Russia and CIS.
    7. Hilger, Anne & Nordman, Christophe Jalil & Sarr, Leopold, 2018. "Cognitive and Non-Cognitive Skills, Hiring Channels, and Wages in Bangladesh," IZA Discussion Papers 11578, Institute of Labor Economics (IZA).
    8. Intan NURPRATIWI & Syamsurijal AK & YUNISVITA, 2020. "Factors that influence wages differences in formal sector on male and female workers in Palembang City," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(622), S), pages 147-158, Spring.
    9. Catia Nicodemo & Gustavo Adolfo García, 2015. "Job Search Channels, Neighborhood Effects, and Wages Inequality in Developing Countries: The Colombian Case," The Developing Economies, Institute of Developing Economies, vol. 53(2), pages 75-99, June.
    10. Smriti Sharma & Christophe Nordman, 2018. "Pecuniary returns to working conditions in Vietnam," WIDER Working Paper Series 72, World Institute for Development Economic Research (UNU-WIDER).
    11. Rebien, Martina, 2019. "Do social networks mitigate stigma effects from long-term unemployment?," IAB-Discussion Paper 201916, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    12. Christophe J. Nordman & Smriti Sharma, 2018. "Pecuniary returns to working conditions in Vietnam," WIDER Working Paper Series wp-2018-72, World Institute for Development Economic Research (UNU-WIDER).
    13. Nicoletta Berardi & Marie Lalanne & Paul Seabright, 2019. "Professional Networks and their Coevolution with Executive Careers," Working papers 723, Banque de France.
    14. Afridi, Farzana & Dhillon, Amrita, 2022. "Social Networks and the Labour Market," IZA Discussion Papers 15774, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    social networks; hiring channel; wage differential;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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