DISCUSSION

repec.nep.lma

n?u=RePEc:iza:izadps:dp10389&r=lma

We use Gasparini and Tornarolli’s (2009) adaptation of legalistic informality, which is

based on access to pensions. Informality is thus defined as a dichotomous variable which takes the

value 1 if the individual does not have the right to any form of pensions, and 0 otherwise. 9

Although social security entails numerous other benefits such as unemployment insurance or

health insurance, pensions are the broadest and most accessible category of social insurance found

in national household surveys. Therefore, this measure is the most reliable indicator of informality.

2.2 Productive Informality

In contrast, the productive definition of informality focuses on the nature and status of the

firm that employs a worker. The ILO (1991) refers to informal firms as those "with scarce or even

no capital, using primitive technology and unskilled labor.” This measure takes the premise that

second, employment entitlements and regulations do not change frequently; and third, it captures

evasion by specific individuals, allowing a study of informality within large firms where formal

standards may not apply to all employees (Perry et al. 2007). The main limitations are that these

benefits and entitlements vary across countries, making cross-sectional comparisons difficult,

and that not all countries include comparable questions in their surveys.

9

Workers in Peru have access to two different forms of pensions: private pension plans known

as SPP (Sistema Privado de Pensiones) and the public pension system known as SNP (Sistema

Nacional de Pensiones). For example, individuals in the SNP must contribute for 20 years in

order to be eligible for a pension whilst individuals in the SPP have no timed contribution

requirement, but must contribute 13% of gross income (Oficina de Normalización Previsional

2016).

9

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