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Occupational Choice and Investments in Human Capital in Informal Economies

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  • Berniell Lucila

    (CAF, Research Department, Buenos Aires, Argentina)

Abstract

Informality is pervasive in many developing countries and it can affect occupational and educational decisions. Cross-country data shows that the rate of entrepreneurship as well as the gap between the skill premium for entrepreneurs and for workers increase with the size of the informal economy. Also, in countries with larger informal sectors the fraction of high-skilled individuals that choose to be entrepreneurs is larger. To explain these facts, I develop a model economy with human capital investments, occupational choice and an informal sector, in which the investment in human capital improves the efficiency of labor as well as managerial skills, and the technology to produce goods exhibits capital-skill complementarity. Model predictions can account for cross-country evidence and also shed light on the mechanisms at work when the level of informality in the economy increases. In particular, a higher level of informality discourages human capital investments for workers while it incentivizes these investments for the case of some managers, mostly informal but talented.

Suggested Citation

  • Berniell Lucila, 2021. "Occupational Choice and Investments in Human Capital in Informal Economies," The B.E. Journal of Macroeconomics, De Gruyter, vol. 21(2), pages 399-423, June.
    • Handle: RePEc:bpj:bejmac:v:21:y:2021:i:2:p:399-423:n:3
    DOI: 10.1515/bejm-2020-0024
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    Cited by:

    1. Temitope Sade AKINTUNDE & Abiodun Samuel ISAYOMI, 2023. "The Effect Of Informal Economy On Human Capital Development," Business & Management Compass, University of Economics Varna, issue 3, pages 182-195.
    2. Monserrat Serio & Pablo Mahnic, 2022. "Exploring the U-shaped relationship between education and entrepreneurial choice: a theoretical model and empirical findings for Latin America," SN Business & Economics, Springer, vol. 2(6), pages 1-22, June.
    3. Pablo Mahnic, 2021. "Emprendedurismo, capital humano y crecimiento económico," Asociación Argentina de Economía Política: Working Papers 4488, Asociación Argentina de Economía Política.

    More about this item

    Keywords

    entrepreneurship; human capital; informality; occupational choice;
    All these keywords.

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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