Uncovering the wage differential between formal and informal jobs: Analysis from the Colombian Caribbean region

The paper aims to assess the wage differential that would in- duce workers to switch between informal and formal sectors, analysing the informal labour market in the Colombian Ca- ribbean region. Relying on the theory of equalising differenc- es, we uncover which workers perceive the highest utility from holding a formal job. Our research sheds light on how workers derive utility from formal and informal job sectors' benefits and to which extent informal workers are willing to accept a lower (or higher) wage to get a job in the formal sector. We also analyse the factors increasing the likelihood to seek em- ployment in the formal sector. Results suggest that, on average, informal workers in the study region are willing to switch to a formal job only if they are offered a salary higher than their current income but are also willing to accept a salary slightly lower than the legal minimum wage in the formal sector. Finally, perceptions of benefits from formal and informal jobs vary with the socio-economic characteristics of individuals, especially by education level and previous work experience.