024 - Farzam, R.

Reza Farzam:

Wage gap between the formal and informal workers in the construction sector - a case study of Kabul City



Afghanistan‘s economy is being dominated by the informal sector. The construction sector in the country is one of the most attractive places for the informal activities. Until 2014, the share of construction sector in the GDP was increasing dramatically. Heavy investment in the military related projects, government reconstruction projects, private construction activities, and smaller scale development of retail and residential premises had caused a “golden boom” in this sector. Given the huge number of informal employment in the construction sector, it is of huge importance to assess the labor market in the construction sector in Afghanistan, in particular, the existence and drivers of income inequality among the workers in this sector.
The fundamental purposes of this paper are to assess the earning gap between the formal-informal workers in the construction sector based on the human capital theory and assessing the ethnic based wage discrimination in the construction sector in Afghanistan. To do this, two OLS regression models are used on the primary collected data from the field. The result indicates that the wage gap between the formal and informal workers is statistically significant while the wage discrimination is not. Instead; empirical findings envisage the existence of employment discrimination in the construction sector. The study also finds that the formal workers earn exponentially (30.86%) more than informal workers and workers in the formal construction firms earn 22.5% more than their counterparts in the informal construction activities.

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