Abstract
This paper addresses three central issues in the debates on informal employment: trends in informalization, informal employment as a macroeconomic buffer over business cycles, and the effects of higher labour standards and stronger de facto worker rights on informal employment. In particular, we address the hypothesis that stronger "civic rights" - such as freedom of association and collective bargaining rights - and higher wage shares in the formal sector reduce employment in that sector and thereby contribute to informalization. These issues are explored using panel data on specific categories of formal and informal employment for fourteen Latin American countries in the 1990s, evaluating both cross-country and time series variation. In the context of an increasing share of informal employment in the 1990s, we find evidence that informal employment acted as a cyclical buffer for formal employment. Regarding labour standards, our main finding is that countries with stronger "civic rights" tend to have higher shares of formal employment and lower shares of informal employment, even accounting for per capita income and other control variables.