Syndicate content

Add new comment

Thank you for your comments. Regarding the motivations of informal business owners, in surveys conducted in Madagascar, Côte d’Ivoire, and Mauritius, 62 percent of business owners report that they started their firm to take advantage of a business opportunity, while the remainder says they were not able to find a satisfactory job elsewhere (Amin, 2009). Maloney (2004) also presents similar numbers for Brazil and Mexico. However, I agree that there is also the possibility that some individuals may prefer operating an informal business to registering or becoming a wage worker. I conducted a few case studies of informal business owners in Mexico. Some informal business owners reported that they were looking for a wage job, mostly because of the health insurance, pension, and income security that come with it. In contrast, others liked the flexibility of being their own boss and argued that the costs of registering their firm were greater than the benefits. In fact, for some firms, there may not be any benefits to registering. Evidence from Bolivia and Indonesia suggests that not all informal firms benefit equally from registering and for some firms in Bolivia, formalization lowers profits (McKenzie and Sakho, 2010, and McCulloch, Schulze, and Voss, 2010). Tying this back to the findings of my recent study, the fact that some informal business owners switch to being wage earners when more wage job become available suggests that at least some of them are indeed looking for a wage jobs. However, in my study there are still many informal business owners of the “wage worker” type who continue operating their informal business, so I cannot conclude that all of them are indeed seeking a wage job. References Amin, Mohammad. 2010. "Labor Productivity in the Informal Sector: Necessity Vs. Opportunity Firms." The World Bank, mimeo. Maloney, William. 2004. "Informality Revisited." World Development, 32 (7): 1159-1178. McCulloch, Neil, Günther G Schulze, and Janina Voss. 2009. What Determines Firms’ Decisions to Formalize? Empirical Evidence from Rural Indonesia. Proceedings of the German Development Economics Conference, Frankfurt a.M. 2009. Verein für Socialpolitik, Research Committee Development Economics. McKenzie, David, and Yaye Seynabou Sakho. 2010. "Does it pay firms to register for taxes? The impact of formality on firm profitability." Journal of Development Economics 91 (1): 15-24.