Labor informality in Ecuador: Analyzing its determinants under a quantitative approach

This research aims to establish the determinants of labor informality in Ecuador in the years 2009 and 2019, using crosssectional microdata. For this purpose, we used data obtained from the National Survey of Employment, Unemployment and Underemployment (ENEMDU for its acronym in Spanish). We applied probit models to estimate the probability that an individual with specific characteristics belongs or does not belong to the informal sector, and the Oaxaca-Blinder (1973) methodology to corroborate the existence of a wage gap between the formal and informal sectors. With this, we found that migration, family size, age and sex are determinants of labor informality in Ecuador, where, the number of family members and age have a positive influence on the probability of being an informal worker, while being a migrant and being male have a negative influence. In addition, we find that there is a significant wage gap between the formal and informal sectors, which is mainly due to differences in human capital endowments. Finally, we recommend that policymakers implement a social program aimed at reducing vulnerability and mitigating the effects of labor informality.