Earnings differentials between formal and informal employment in Thailand

The paper estimates the earnings gap between formal and informal employment in Thailand, using a sample of workers that includes both wage and self- employed workers. It finds that while the major part of the earnings differential is attributed to observed characteristics, there is a significant unexplained component. The paper then applies a quantile regression method to an earnings function to understand the factors that explain differences in earnings for different quartiles. Controlling for other factors, it finds that informally employed workers systematically present lower earnings at all earnings levels, and the difference increases with level of earnings. Furthermore, the estimated marginal effect of gender on earnings is negative and remains more or less constant across the different quartiles, while returns to education are positive and increase with income quartiles. The premium of working in services or manufacturing is higher at the lower end of the income distribution and the non- farm self-employed worker is likely to earn more than others. The findings of this study have implications for policies for productive transformation in the country, along with a focus on education and gender equality.