The informalization of the Egyptian economy (1998–2012): a driver of growing wage inequality

Abstract

We run recentered influence function (RIF) regressions, using Firpo et al. (2007) distributional approach to identify each control variable's contribution on the decomposition of wage changes. Using the Egyptian Labour Market Surveys 1998-2012 for waged men we find that wage changes between 1998 and 2012 mainly resulted in increased inequality. The richer percentiles have persistently enjoyed disproportionately larger positive changes in real hourly wages. Whilst increasing in all three wage gaps, inequality increased the most between the top and bottom deciles (90-10 gap), i.e. between the lowest and highest wage earners. This increase in inequality is primarily driven by the unexplained wage structure effect. The distinct labour market segments are foremost responsible for the increased inequality trend. Private sector informality is the largest contributor to increased inequality. The sector does not adhere to a minimum wage, and being unregulated it has responded dramatically to the severe competitive pressures caused by the departing middle classes of the public sector. It suppressed mid and low-end wages resulting in sharp wage gaps at the tails. Public sector wage setting dynamics and the direction of labour movements since liberalization cause the sector to contribute more to wage inequality than does its formal private counterpart.

Evaluating the impact of general versus vocational education on labor market outcomes in Egypt by means of a regression discontinuity design

“…Until the beginning of the 1990s, the public sector was the main source of employment opportunitiesespecially for well-paid formal jobs. Policy measures initiated in the 1990s to downsize formal sector employment spurred the growth of the informal private sector rather than nurturing the growth of a formal private sector (El-Haddad and Gadallah, 2021;El-Haddad, 2020). Also because Egypt's formal private sector was relatively small at that time, and thereby unable to absorb the oftentimes well-educated youth entering the labor market.…”

Educational expansion and shifting private returns to education: Evidence from Mozambique

“…In both of the studies noted above, among others, a key outcome of the ‘race’ between technology and education (Acemoglu & Autor, 2012) has been one of higher earnings inequality. Similarly in Egypt, El‐Haddad and Gadallah (2021) call attention to growth in wage dispersion driven by increasing informalisation across the economy and, thus, declining relative returns to education at lower levels. The Mozambique case underlines the relevance of these structural patterns, showing the challenges that emerge when large‐scale educational expansion is not accompanied by material changes in labour demand or complementary improvements in the technological productivity of tasks undertaken by lower skilled workers.…”