ABSTRACT
This chapter explains the study in which the exclusion or the exit hypothesis regarding informality is best suited to the urban Malagasy labour market. The purpose of the chapter is to address the important issue of heterogeneity at three levels: the worker level, taking into account individual unobserved characteristics; the job level, comparing wage workers with self-employed workers; and the earnings distribution. The econometric analysis consists of assessing the magnitude of different types of informal and formal earnings gaps using Ordinary Least Square (OLS) and quantile regressions with log hourly earnings as dependent variable. The earnings gaps look more like those observed in emerging countries, characterized by a weak segmentation between formal and informal jobs, than the standard dualistic Sub-Saharan labour markets. A first extension would be to better control for individual unobserved characteristics, by purging our earning estimations of differences in the amount of physical capital and social networks.
