Structural reform, institutions and earnings: Evidence from the formal andinformal sectors in urban Peru

Reforms undertaken in Peru in the early 1990s might have resulted in a slig ht reduction of the informal sector Costs associated with becoming and stay ing informal, and benefits of becoming formal might have increased. This, w hen a legalistic definition of informality is used Earnings differentials b etween formal and informal self-employed workers are negligible although th ey persist between formal and informal salaried workers. Skilled workers ar e more likely to be found in the formal sector and informal wage earners te nd to be younger and less skilled The earnings generating process for both the formal and the informal self-employed workers is similar.