Séminaire

Labor Market Frictions, Informality and Schooling

Matteo Bobba (TSE)

22 novembre 2016, 11h00–12h30

Salle MS001

TSE internal seminars

Résumé

Many labor markets, typically in medium- and low-income countries, are characterized by high levels of informality. Informality is associated with particularly weak indicators of labor market performance but may also constitute an important margin to increase labor market flexibility. In this paper, we focus on one margin of the workers’ side long-term cost of informality: the possible under-investment in education prior to labor market entry. We propose a search-matching-bargaining model of a fric- tional labor market in which potential employees are randomly matched with firms that could offer legal and illegal wage contracts and individuals choose (i) whether becoming self-employed or remaining unemployed prior to searching for a job as employees and (ii) whether acquiring productivity-enhancing schooling prior to labor market entry. Structural estimation of the model’s parameters using Mexican micro-data enables us to quantify the sensitivity of educational investments with respect to the labor market environment and to evaluate the equilibrium impacts of alternative labor market policies.