ESSAYS ON THE INFORMAL AND THE FORMAL SECTOR OF THE INDONESIAN LABOUR MARKET

Abstract

The thesis studies the informal and the formal sectors in Indonesia using data from the Indonesia Family Life Survey (IFLS). We find that controlling for selection into the formal sector using propensity score matching lowers considerably the premium associated with the formal sector compared to the mean differences estimates of the earnings premium. In addition, we find that this premium along with the definition of the informal and formal sectors. Given the evidence for an earnings premium, we also look at employment transitions between the two sectors. We find that living in a non-rural area and having an education above the compulsory education level lower the transition rate out of the formal sector and increase the transition rate in the informal sector. Moreover, the impact of these two experiments can be translated into a longer time in the formal sector and a shorter time in the informal sector.