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Entrepreneurship, On-the-job Search and Informal Jobs

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  • Lisi, G.

    (Department of Economics, University of Cassino, Italy)

Abstract

This paper develops a search and matching model of equilibrium unemployment, with on-the-job search, extended to both the informal sector and entrepreneurship. Three are the key features of this model: the entrepreneurial ability affects job productivity, all unemployed start their job search in the official sector, and workers employed in the informal sector try to move into the official one. Two key results emerge from the analysis. First: firms become heterogeneous in productivity, thus providing a new solution to the problem of finding an interior equilibrium where vacant jobs are allocated to both the regular and the hidden sector (the so-called ‘shadow puzzle’). Second: if the informal sector is sufficiently large, an increase in labour market tightness increases the unemployment rate and then the ‘vacancies-unemployment’ relationship (the so-called ‘Beveridge Curve’) switches from negative to positive.

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Bibliographic Info

Article provided by New Economic Association in its journal Journal of the New Economic Association.

Volume (Year): (2011)
Issue (Month): 9 ()
Pages: 33-46

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Handle: RePEc:nea:journl:y:2011:i:9:p:33-46

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Related research

Keywords: entrepreneurship; on-the-job search; unemployment; match­ing models; shadow/hidden/underground/informal economy;

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  1. Rafael La Porta & Andrei Shleifer, 2008. "The Unofficial Economy and Economic Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 275-363.
  2. Audretsch, David B & Keilbach, Max, 2003. "Entrepreneurship Capital and Economic Performance," CEPR Discussion Papers 3678, C.E.P.R. Discussion Papers.
  3. Kolm, Anne-Sofie & Larsen, Birthe, 2003. "Wages, unemployment, and the underground economy," Working Papers 11-2003, Copenhagen Business School, Department of Economics.
  4. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
  5. Maxim Bouev, 2005. "State Regulations, Job Search and Wage Bargaining: A Study in the Economics of the Informal Sector," William Davidson Institute Working Papers Series wp764, William Davidson Institute at the University of Michigan.
  6. Ansgar Belke & Rainer Fehn & Neil Foster, 2003. "Does Venture Capital Investment Spur Employment Growth?," CESifo Working Paper Series 930, CESifo Group Munich.
  7. Pugno, Maurizio & Lisi, Gaetano, 2010. "Entrepreneurship and the Hidden Economy: An Extended Matching Model," MPRA Paper 25301, University Library of Munich, Germany.
  8. Paul Frijters & Uwe Dulleck & Rudolf Winter-Ebmer, 2006. "Reducing Start-up costs for New Firms: The Double Dividend on the Labor Market," School of Economics and Finance Discussion Papers and Working Papers Series 208a, School of Economics and Finance, Queensland University of Technology.
  9. Tanzi, Vito, 1999. "Uses and Abuses of Estimates of the Underground Economy," Economic Journal, Royal Economic Society, vol. 109(456), pages F338-47, June.
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  12. Christopher A. Pissarides, 2002. "Company Start-Up Costs and Employment," CEP Discussion Papers dp0520, Centre for Economic Performance, LSE.
  13. repec:ebl:ecbull:v:10:y:2007:i:13:p:1-11 is not listed on IDEAS
  14. James Albrecht & Lucas Navarro & Susan Vroman, 2008. "The Effects of Labour Market Policies in an Economy with an Informal Sector," ILADES-Georgetown University Working Papers inv208, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
  15. Boeri, Tito & Garibaldi, Pietro, 2006. "Shadow Sorting," CEPR Discussion Papers 5487, C.E.P.R. Discussion Papers.
    • Tito Boeri & Pietro Garibaldi, 2005. "Shadow Sorting," NBER Chapters, in: NBER International Seminar on Macroeconomics 2005, pages 125-163 National Bureau of Economic Research, Inc.
  16. Dale T. Mortensen, 2005. "Alfred Marshall Lecture: Growth, Unemployment, and Labor Market Policy," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 236-258, 04/05.
  17. Boeri, Tito & Garibaldi, Pietro, 2002. "Shadow Activity and Unemployment in a Depressed Labour Market," CEPR Discussion Papers 3433, C.E.P.R. Discussion Papers.
  18. Kolml, Ann-Sofie & Larsen, Birthe, 2010. "The Black Economy and Education," Research Papers in Economics 2010:3, Stockholm University, Department of Economics.
  19. Jacques, Jean-François & Fugazza, Marco, 2004. "Labor market institutions, taxation and the underground economy," Economics Papers from University Paris Dauphine 123456789/1888, Paris Dauphine University.
  20. Zenou, Yves, 2008. "Job search and mobility in developing countries. Theory and policy implications," Journal of Development Economics, Elsevier, vol. 86(2), pages 336-355, June.
  21. Francesco Busato & Bruno Chiarini, 2004. "Market and underground activities in a two-sector dynamic equilibrium model," Economic Theory, Springer, vol. 23(4), pages 831-861, May.
  22. Fonseca, Raquel & Lopez-Garcia, Paloma & Pissarides, Christopher A., 2001. "Entrepreneurship, start-up costs and employment," European Economic Review, Elsevier, vol. 45(4-6), pages 692-705, May.
  23. Maxim Bouev, 2002. "Official Regulations and the Shadow Economy: A Labour Market Approach," William Davidson Institute Working Papers Series 524, William Davidson Institute at the University of Michigan.
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