Bobba, Matteo, Flabbi, Luca and Levy, Santiago (2022) Labor market search, informality and schooling investments. International Economic Review, vol. 63 (n° 1). pp. 211-259.

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Identification Number : 10.1111/iere.12536


We develop a search and matching model where matches (jobs) can be formal or informal.
Workers choose their level of schooling and search for an employee job either as unemployed
or as self-employed. Firms post vacancies in each schooling market, decide the formality
status of the job, and bargain with workers over wages. The resulting equilibrium size of the
informal sector is an endogenous function of labor market and institutional characteristics.
We estimate the model parameters using labor force survey data from Mexico and the exogenous
variation induced by the roll-out of a non-contributory social program. Counterfactual
experiments based on the estimated model show that eliminating informal jobs increases
schooling investments but at the cost of decreasing welfare for both workers and firms.

Item Type: Article
Language: English
Date: February 2022
Refereed: Yes
Place of Publication: Oxford.
Uncontrolled Keywords: Labor market frictions, Search and matching, Nash bargaining, Informality, Returns to schooling
JEL Classification: J24 - Human Capital; Skills; Occupational Choice; Labor Productivity
J3 - Wages, Compensation, and Labor Costs
J64 - Unemployment - Models, Duration, Incidence, and Job Search
O17 - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements - Legal, Social, Economic, and Political
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 14 Apr 2022 13:08
Last Modified: 18 Apr 2024 11:33
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