Aug 1, 2019 - Mar 31, 2020
This paper studies income profiles, uncertainties and inequality over the life cycle in developing economies with large informal sectors that has important implications for many policy issues such as social insurance, taxation and pension in developing countries. It is typical for a developing economy that more than half of its total employment is in the informal sector. This feature largely deviates from developed economies and normally is not considered in economic analyses. We also investigate the impacts of the existence of a large informal sector on individuals’ life cycle income, as well as the implications for economic/public policies. We first use Thailand as an example because its informal employment is stably above 50%. A cross-country comparison will be also provided. Our initial data investigation indicates that the growth of earnings over the life cycle in the informal sector is significantly less than that in the formal sector. We further investigate shocks of earnings in both formal and informal sectors to understand their features, including persistency and magnitude. We will also apply the estimated life cycle patterns/shocks of earnings together with the employment uncertainties of transitions between the formal/informal sectors into a standard lifecycle to perform simulations for policy implications, such as a reform of income taxes and an extension of social security.