Informality sectoral selection and earnings in Uruguay

In this paper we define an informal worker as one who is not contribut- ing to the social security system. We analyze the likelihood of being an informal worker, and we estimate the differentials in earnings between sectors using the OLS estimation and a switching regression model. We find that formality is more likely among the better-educated, and among men, those residing in the capital city, and heads of households. In addition, we find that according to five different proxies of the av- erage gap for salaried workers and several sub-samples, earnings are higher in the formal than in the informal sector for all the samples.