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Labor Market Search, Informality, And Schooling Investments

Author

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  • Matteo Bobba
  • Luca Flabbi
  • Santiago Levy
Abstract
We develop a search and matching model where jobs can be formal or informal. Workers choose schooling and search for jobs. Firms post vacancies in each schooling market and decide the job's formality status. Upon meeting, workers and firms bargain over wages. The equilibrium size of the informal sector is an endogenous function of labor market fundamentals and institutions. We estimate the model using labor force survey data from Mexico and exploiting the exogenous variation induced by a noncontributory social program. Counterfactual experiments show that eliminating informal jobs increases schooling investments but decreases welfare for both workers and firms.

Suggested Citation

  • Matteo Bobba & Luca Flabbi & Santiago Levy, 2022. "Labor Market Search, Informality, And Schooling Investments," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(1), pages 211-259, February.
    • Handle: RePEc:wly:iecrev:v:63:y:2022:i:1:p:211-259
    DOI: 10.1111/iere.12536
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    Cited by:

    1. Bobba, Matteo & Flabbi, Luca & Levy, Santiago & Tejada, Mauricio, 2021. "Labor market search, informality, and on-the-job human capital accumulation," Journal of Econometrics, Elsevier, vol. 223(2), pages 433-453.
    2. Girsberger, Esther Mirjam & Meango, Romuald, 2022. "The Puzzle of Educated Unemployment in West Africa," IZA Discussion Papers 15721, Institute of Labor Economics (IZA).
    3. Camilo Bohorquez-Penuela & Andrea Otero-Cortes, 2020. "Blame it on the Rain: The Effects of Weather Shocks on Formal Rural Employment in Colombia," Documentos de Trabajo Sobre Economía Regional y Urbana 18404, Banco de la República, Economía Regional.
    4. Renata Narita, 2020. "Self-Employment in Developing Countries: A Search-Equilibrium Approach," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 35, pages 1-34, January.
    5. Andrea Otero-Cortés, 2022. "Heterogeneous Returns of Informality: Evidence From Brazil," Documentos de Trabajo Sobre Economía Regional y Urbana 20176, Banco de la República, Economía Regional.
    6. Kerndler, Martin, 2023. "Occupational safety in a frictional labor market," Labour Economics, Elsevier, vol. 83(C).
    7. Kevin Donovan & Will Jianyu Lu & Todd Schoellman, 2023. "Labor Market Dynamics and Development," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 138(4), pages 2287-2325.
    8. Bustelo, Monserrat & Flabbi, Luca & Piras, Claudia & Tejada, Mauricio, 2019. "Female Labor Force Participation, Labor Market Dynamic and Growth in LAC," IDB Publications (Working Papers) 9420, Inter-American Development Bank.
    9. Gabriella Conti & Rita Ginja, Renata Narita, 2018. "The Value of Health Insurance: A Household Job Search Approach," Working Papers, Department of Economics 2018_18, University of São Paulo (FEA-USP).
    10. Busso, Matias & Chauvin, Juan Pablo & Herrera L., Nicolás, 2021. "Rural-urban migration at high urbanization levels," Regional Science and Urban Economics, Elsevier, vol. 91(C).
    11. Fang, Lan & Quan, Yurong & Mao, Hui & Chen, Shaojian, 2022. "The Information Communication Technology and Off-farm Employment of Rural Laborers: An Analysis Based on the Micro Data of China Family Panel Studies," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322088, Agricultural and Applied Economics Association.
    12. Mauricio Tejada & Claudia Piras & Luca Flabbi & Monserrat Bustelo, 2021. "Gender Gaps in Latin American Labor Markets: Implications from an Estimated Search Model," Annals of Economics and Statistics, GENES, issue 142, pages 111-178.
    13. Brenda Samaniego de la Parra & Andrea Otero-Cortés & Leonardo Fabio Morales, 2021. "The Labor Market Effects of Part-Time Contributions to Social Security: Evidence from Colombia," Documentos de Trabajo Sobre Economía Regional y Urbana 19702, Banco de la República, Economía Regional.
    14. Flabbi, Luca & Tejada, Mauricio M., 2023. "Are informal self-employment and informal employment as employee behaviorally distinct labor force states?," Economics Letters, Elsevier, vol. 231(C).
    15. Benjamín Villena-Roldán, 2024. "Unpacking the Persistence of Informality," Journal of Labor Research, Springer, vol. 45(2), pages 203-231, June.
    16. Lucas Navarro & Mauricio Tejada, 2022. "Does Public Sector Employment Buffer the Minimum Wage Effects?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 43, pages 168-196, January.
    17. Matteo Bobba & Luca Flabbi & Santiago Levy, 2022. "Labor Market Search, Informality, And Schooling Investments," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(1), pages 211-259, February.
    18. Renata Narita, 2020. "Self-Employment in Developing Countries: A Search-Equilibrium Approach," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 35, pages 1-34, January.
    19. Esteban-Pretel, Julen & Kitao, Sagiri, 2021. "Labor Market Policies in a Dual Economy," Labour Economics, Elsevier, vol. 68(C).
    20. Azuara Herrera, Oliver & Azuero, Rodrigo & Bosch, Mariano & Torres, Jesica, 2019. "Special Tax Regimes in Latin America and the Caribbean: Compliance, Social Protection, and Resource Misallocation," IDB Publications (Working Papers) 9511, Inter-American Development Bank.
    21. Finamor, Lucas, 2024. "Labor Market Informality, Risk, and Insurance," MPRA Paper 121662, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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