Education can help individuals develop employable skills and get access to new labor

markets. However, societal or labor force discrimination could undo the returns to education for

certain social groups by forcing members of non-dominant groups into informal labor markets

(UNDP 2013). Lack of access to formal markets usually precludes social security benefits and

pensions. Without social security and pensions, individuals are more at risk of poverty (Barrientos

2005, 2011; van der Klaauw and Wolpin 2005; Bernheim et al. 2015). Informal workers are

considerably more ‘vulnerable’—likely to be in poverty in the future— and lack numerous socially

sanctioned protections as compared to formal workers (Barrientos 2011; ILO 2002).

To what extent can education counteract discrimination, and thus allow members of

discriminated groups to gain access to formal jobs? In developing countries where labor

informality is commonplace, education may prove to be a useful tool to align educated workers

with the highly productive formal sector. Latin America has a significant informal sector,

estimated at around 40 percent of GDP (Schneider 2015) and comprising over 50 percent of the

region’s workers (Vanek et al. 2014). In comparison, in the Middle East and North Africa the

informal sector amounts to approximately 30 percent of GDP and 45 percent of workers. Despite

having higher per capita income and higher educational enrollment rates, Latin America has far

more informality than the Middle East and North Africa (World Bank 2016).

Although numerous studies estimate the wage returns to education, few have focused on

the returns to education as they pertain to formal employment, and to our knowledge, none in the


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