New approach to estimating macroeconomic determinants of informal employment

Informal employment is a less favourable type of employment whose levels policy makers usually want to decrease and move these workers in the formal part of the labour market. It is more commonly found in LDCs and in developing economies, than in developed ones. This paper uses a cross-section multiple regression analysis to check the effects of multiple macroeconomic variables on the size of the informal labour market. The sample is made out of economies for which ILO has published data about the share of employment outside the formal sector, excluding the economies that receive aid from IDA, using 2017, 2018 and 2019 data from the International Labour Organization and other international organizations. Results show that macroeconomic variables do not have significant explanatory power, except for unemployment rate, exports and GDP growth rate.