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Abstract
Unlike previous studies focusing on either market structure or gender earning gap separately, this study considers market structure as a more crucial factor in determining the gender earning gap. The estimated wage differentials between sectors from the fixed-effects (FE) model demonstrate a substantial drop in the size of wage gaps, reflecting systematic sorting between formal and informal sectors by unobserved workers’ abilities. While estimated wage differentials from cross-sectional analysis between formal and informal sector among male workers disappear in the FE estimations, the wage gap between the formal and the informal sector among female workers still exists in the FE estimations, thus suggesting a differing dual labor market severity between gender groups. Based on these empirical results, we discuss a policy direction involving simultaneous consideration of the dual structure of the labor market and gender discrimination.
Acknowledgements
This paper was financially supported by Samsung Research Fund, 2008, Sungkyunkwan University. We are also grateful for the valuable comments from two anonymous referees.
Notes
1. For example, Yamada (Citation1996) declares workers to belong to the informal sector so long as they are not subject to taxes or government regulation, and as long as the employer can easily change both the employees’ wages and the employment contract. Marcouiller et al. (Citation1997) focuses on two aspects – firm size and coverage of the social security system. They define workers as being in the informal sector if the firm size is quite small (employees are less than five or so) or if workers do not receive social security benefits as an employment condition. Saavedra and Chong (Citation1999) employ a broader definition of the informal sector as including several criteria – including formal contracts, health insurance and pension coverage, and tax payments.
2. The lack of governmental institutional support for women in having and raising children or gender discriminatory work practices make it difficult for women whose careers have been interrupted to return to their previous formal sector jobs. As a consequence, they are frequently compelled to settle in the informal market (Cho and Kwon Citation2010, Cho, Cho et al. Citation2010).
3. The gender earnings gap in the Korean labor market is approximately 35%, indicating a huge gender gap relative to the fact that the gender earnings gap is approximately 20% in most OECD nations (OECD Citation2008).
4. They use several characteristics of workers which are considered to affect whether workers are in the informal sector. Those include whether one is married, one is the head of the household, and the number of infants in the family.
5. It is advisable to report whether the coefficients of excluded variables in the first-stage equation are jointly significant.
6. The fixed-effects estimates of informal sector dummies might be biased if job changes are due to learning by employees and/or employers in the workplace. For example, workers with high unmeasured ability in the informal sector gradually tend to move to the formal sector as their ability levels become apparent to workers and/or employers over time. This can also be applied to lower-ability workers in the informal sector. In order to solve this sorting problem, Krueger and Summers (Citation1988) use the sample of displaced workers who were involuntarily displaced from their previous jobs. However, we cannot rule out entirely the self-selection problem, as the new jobs are decided on by workers.
7. As a result, individuals residing in rural areas are excluded from this survey.
8. The sample retention rates of KLIPS were 88% in 1999, 81% in 2000, and 77% in 2001. The retention rates are stable at approximately 77% since 2001.
9. Workers who are observed at least twice during the time period are analyzed.
10. The unemployment insurance system in Korea was first introduced in July of 1995, and was extended to businesses with fewer than 30 employees in 1998. However, the extension of unemployment insurance is quite limited in practice. Eligibility is restricted to workers with a minimum of six months of employment. Most temporary and part-time workers in the informal labor market remain uninsured by unemployment insurance. The medical insurance system in Korea was established when the National Health Insurance Law was passed in 1999. The system was enacted with expansion to workplaces on 1 July 2001. The system was characterized by low-benefit coverage, where the out-of-pocket payment of nearly 35–40% of the incurred medical cost places a greater burden on low-wage earners in the informal labor market. Since many Korean workers in the informal labor market are hired on contracts, they must pay their own medical insurance fees, with no collaborative burden or contribution from the employers’ side.
11. While the average schooling time among female workers is 12.1 years, it is 13.1 years for male workers.
12. See Cho and Cho (Citation2009) and Cho and Cho (2010) for their international comparison of wage systems between the US and Korean labor markets.
13. The F-test statistic is 11.52 for male workers and 12.74 for female workers.
14. Including firm size variables seems to affect the size of the estimated coefficients of the informal sector dummy variable in the cross-sectional regression. When we drop the firm size variable, the estimated coefficient of informal sector dummy variable rises to –12.5%.
15. While not shown in this paper, the inclusion of firm size dummy variables hugely affects the size of the union dummy variable. If we drop the firm size variable in the cross-sectional regression, the effect on union members’ wages will increase to 13.6%. Therefore, it is evident that in order to correctly measure the union effect on wages, one should also consider the effect of firm size. The effect of firm size on wages varies depending on the firm size. Compared with small firms that employ less than 10 workers, the wage premiums for individuals who work in the medium and large firms range from 5.9% to 25.0%.
16. There are very few workers who reported a change of sectors but did not change their jobs. We do not consider these as job changers.
17. While it is not proven by data, we guess that job changers citing involuntary reasons, such as plant closing, might tend to work at new informal sector jobs.
18. The higher current job tenures for sector changers might have produced slightly higher wage increases compared with the sector holders having relatively lower job tenures.
