Informality and Female Labor Income Share

This paper presents original evidence to enhance understanding of the nexus between the informal sector and the economic well-being of women. Women encountering substantial obstacles in accessing formal employment opportunities tend to gravitate towards informal sector employment, which is characterized by lower productivity, lower wages, restricted access to credit and training, and an absence of social security coverage. Using two novel datasets of the size of the informal economy and female labor income share of 148 countries for the period 1991-2018, we show that while informality is associated with lower female labor income share in general, the results vary significantly with respect to countries with different income groups and development level. While there is not generally a significant and consistent association in high-income countries, the correlation is significantly negative in low-income countries and positive in middle-income ones.