Informal employment: An explanation from the demand

Abstract

The paper presents a demand-led explanation of informal employment. Our proposal suggests that it is premature deindustrialization that developing economies are undergoing the main cause of informal employment. To support our theoretical argument, we present empirical evidence using data of selected economies of Latin America. The results of our panel data estimation indicates that in effect premature deindustrialization explains informal employment. Therefore, to reduce it, a policy focused on re-industrializing the economy must be implemented.