The Remains of Informality in the Formal Sector: Social Networks and Wages

in Senegal’s Labour Market

Nicoletta Berardi

Discussant: Derek Blades

Finding a job

• Some people use informal channels to find

a job

• Others use formal methods

• Informal - through friends, family, other

social networks…..

• Formal - answering vacancy notices, open

competition…..

Wage penalties

• Does the choice of recruitment channel affect wages?

• Are those recruited through informal channels paid more or less than those recruited through formal channels?

Aspects of formal/informal recruitment

• Non monetary rewards for informal recruits

• Type of occupation

• Strength of ties of social group

• Efficiency

• Work satisfaction

• Social support

• White collar/blue collar

• Skilled/unskilled

• Family

• Ethnic group - Wolof, Fulani, Serer, Toucouleur, Diola, Mandigo ……..

• Shirking

• Team spirit

• Special skills

Survey• 256 firms and their 1637 employees in

Senegal

• Registered, tax-paying, formal sector manufacturing companies

• 104 mainly hired through formal channels and 152 mainly hired through informal channels

Characteristics of firms

Mainly formal channels

Mainly informal

Total number of firms

104 152

Mean employment

194 72

Owner is director

59 105

Characteristics of employees

Formal Informal Number 555 1018 Same ethnicity 553 1016 Same family 554 1017 Manager 32 23 White collar 101 71 Blue collar 421 920 Education (years) 13.0 10.5 Salary 11.2 10.9

“….the analysis of crude data suggests several potentially relevant dimensions, which are integrated in the theoretical framework.”

“….. the rigor of econometrics is necessary to disentangle the relative role played by different variables,…”

The model

• Refers to a formal sector firm

• Free to recruit a worker through formal channels at the market wage rate

• Or to recruit through informal channels in which case the wage rate is negotiated

Some results (1)• Unskilled workers more likely to be hired

informally• Managers equally likely to be hired formally or

informally• Relatives of manager most likely to be hired

informally but substantial wage penalties• Longer educated more likely to be hired formally

Some results (2)

• Education and experience positively correlated with higher wages regardless of recruitment channel

• People over 40 more likely to have been hired informally

• Firms in Dakar more likely to recruit formally

• Larger firms more likely to recruit formally

Some thoughts• “Remains of informality” – is it dying out?

– IARIW and the communist party as social networks

– Renault and village recruitment

• Informal sector enterprises– Denied access to formal recruitment channels?– Impediment to growth?

• Nepotism – always a bad thing?– Ford, Murdoch, Singapore…..

Characteristics of employees

Formal Informal Number 555 1018 Same ethnicity 553 1016 Same family 554 1017 Manager 32 23 White collar 101 71 Blue collar 421 920 Education (years) 13.0 10.5 Salary 11.2 10.9