Pay Gaps and Mobility for Lower and Upper Tier Informal Sector Employees: an investigation of the Turkish labor market

In our paper, we carry this analysis for Turkey and estimate the wage gap between formal and informal sector workers utilizing panel data from Survey of Income and Living Conditions (SILC) for the period of 2014 and 2017. We consider observable and unobservable characteristics with a fixed effect model, and for sensitivity tests we regard the possibility of nonlinearity in covariate effects and estimate a variant of matching models. Our results show that informal wage penalty is persistent even after unobserved heterogeneity is taken into account, however, the penalty is not statistically significant at the upper end of the wage distribution. There are important differences between regular and irregular workers in terms earnings reductions, and the latter also has slightly lower probability of moving out of informal employment. We also demonstrate that the mobility of lower and upper tier informal workers is affected by different variables.