We develop a search and matching model where rms and workers produce output that depends both on match-specic productivity and worker-specic 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 magnies the negative impact on productivity of the labor market institutions that give raise to informality.
Labor market frictions; Search and matching; Nash bargaining; Informality; Onthe Job human capital accumulation.;
- 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