ENTERPRISE SURVEYS                        63665
                         ENTERPRISE NOTE SERIES

                                                          INFORMALITY
                         Education and the Structure of Informal
2011




                         Firms in Latin America
                         Mohammad Amin
ENTERPRISE NOTE NO. 24




                         Introduction
WORLD BANK GROUP
                                                    Labor productivity is higher for
                                                    firms with more educated owners
                                                 Less than secondary education     Secondary or higher education
 regular month (U.S.$, median values)
    Sales to employment ratio in a




                                        350
                                        300
                                        250
                                        200
                                        150
                                        100
                                        50
                                         0
                                                Full Argentina    Peru Manufacturing Service    Single   Multiple
                                              sample                                           employee employees



Source: Enterprise Surveys.


Labor productivity is higher among                                                                                  Younger entrepreneurs are more likely
the more educated                                                                                                   to have higher education




                                                                                                                                                                            Even a large number of observable
                                                                                                                                                                            factors cannot fully explain why
                                                                                                                                                                            monthly sales increase with the
                                                                                                                                                                            level of education of the owner of
                                                                                                                                                                            the firm
                                                                                                                                                                                                         0.60
                                                                                                                         (logs, quartile averages of residuals)




                                                                                                                                                                                                         0.40
                                                                                                                              Average labor productivity




                                                                                                                                                                                                         0.20

                                                                                                                                                                                                         0.00
                                                                                                                                                                  -1.50       -1.00           -0.50         0.00          0.50        1.00       1.50
                                                                                                                                                                                                        -0.20

                                                                                                                                                                                                        -0.40

                                                                                                                                                                                                        -0.60

                                                                                                                                                                          Proportion of firms in Buenos Aires (quartile averages of residuals)




                                                                                                                    Source: Enterprise Surveys.
                                                                                                                    The figure is a partial scatter plot of the quarterly average
                                                                                                                    residual values of total sales in a regular month (log values)
Firm-size increases with the level                                                                                  against the residuals of the dummy variable equal to 1 if the
                                                                                                                    owner has secondary or higher education and 0 otherwise.
of education of the owner
                                                                                                                    The residuals are obtained from the regression of sales
                                                                                                                    (logs) and education dummy variable on the following
                                                                                                                    variables: dummy indicating if a firm uses machinery, dummy
                                                                                                                    indicating if a firm uses vehicles, age of the firm (logs), years
                                                                                                                    of managerial experience (logs), gender of the largest owner,
                                                                                                                    age of the largest owner (logs), dummy indicating whether the
                                                                                                                    firm operates from inside or outside of household premises,
                                                                                                                    dummy indicating if corruption is a severe obstacle to doing
                                                                                                                    business and a similar dummy for crime, dummy variables
                                                                                                                    for the sector (20 sectors) and a dummy for the country. The
                                                                                                                    positive relationship shown is statistically significant at the
                                                                                                                    5 percent level with Huber-White robust standard errors.




 2
                                               With the exception of cell phones, the use of
                                               equipment, such as machinery and vehicles,
Owners with higher education are more likely   does not increase with the level of education
to have parents who own a business and have
higher education




                                               Use of external sources of funds is more
                                               common among the more educated


The more educated show a greater
willingness to register




                                                                                               3
                                          There is little complementarity                                Conclusion
                                          between human capital
                                          and machinery

                                      Less than secondary education     Secondary or higher education

                              70
  Percent of firms that are




                              60
      using machinery




                              50
                              40
                              30
                              20
                              10
                              0
                                     Full Argentina    Peru Manufacturing Service    Single   Multiple
                                   sample                                           employee employees




                                                                                                         Notes
Source: Enterprise Surveys.


Some results are specific to the country and
the sector to which a firm belongs




                                                                                                         References




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