How do micro-firms relate to informality? Is informality systematically associated with firm
performance? What does informal employment in micro-firms really mean? To answer these
questions we use matched employer-employee data on firms with up to 5 workers and all their
workers from the Moroccan Enterprise Survey of Micro-firms 2007. Our main findings are as
follows. First, the strongest predictors of a firm lack of registration are the owner’s level of
education, having started the business following from a period of unemployment, absence of
business with larger firms, and concerns about tax increase and labor law enforcement. Second,
even among small and similar firms, those choosing to register have better performance,
including higher labor productivity and likelihood of producing a level of income classified as
satisfactory by the owner. Third, informal employment goes beyond informal firms: 55% of the
workforce of registered firms is informal. It is mainly associated with labor market-unrelated
workers’ characteristics, such as household size and being a married woman. Similarly, worker
gender is the sole systematic determinant of hours worked. Besides being systematically related
to age and education, wages of informal workers rise with the number of children and household
size, and tend to be higher for the head of the household, suggesting a higher bargaining power
and that informality may be in itself a coping mechanism with vulnerability. Nonetheless, firms’
characteristics play an important role in wage determination, particularly labor productivity and,
to a smaller extent, size. Finally, while there is no significant wage (or hours worked) premium to
formality, earnings of informal entrepreneurs tend to be significantly higher than those of
informal salaried workers.