Elsevier

Journal of Econometrics

Volume 223, Issue 2, August 2021, Pages 433-453
Journal of Econometrics

Labor market search, informality, and on-the-job human capital accumulation

Abstract

We develop a search and matching model where firms and workers produce output that depends both on match-specific productivity and worker-specific human capital. The human capital is accumulated while working but depreciates while searching for a job. Jobs can be formal or informal. The model is estimated on labor market data for Mexico. Human capital accumulation is responsible for more than half of the overall value of production, and upgrades more quickly while working formally than informally. Policy experiments reveal that human capital accumulation magnifies the negative impact on productivity of the labor market institutions that give rise to informality.

JEL classification

J24
J3
J64
O17

Keywords

Labor market frictions
Search and matching
Nash bargaining
Informality
On-the-job human capital accumulation
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