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Shadow Activity and Unemployment in a Depressed Labour Market

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Author Info
Boeri, Tito
Garibaldi, Pietro

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Abstract

This Paper studies the border between shadow employment and unemployment. It argues that the two macroeconomic phenomena are two faces of the same coin: any policy aimed at reducing the former will increase the latter. Theoretically, it proposes and solves a matching model of the labour market, where shadow employment emerges in equilibrium as the endogenous response of firms and workers who felt overburdened by taxes and regulations. While the model we propose neatly rationalizes the labour market trade-off implied by ‘shadow reducing policies’, it suggests that economies with low unemployment turnover should be characterized also by low turnover along the shadow margins. Since existing estimates of shadow employment are silent on labour market flows and on the relation between shadow activity and the main labour market aggregates, we perform original empirical work on the border between employment, unemployment and inactivity, and we find that Italian shadow employment has longer duration in regions with lower unemployment turnover. We also find support to the substantive assumptions of the model.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3433.

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Date of creation: Jun 2002
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Handle: RePEc:cpr:ceprdp:3433

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Related research
Keywords: matching shadow activity unemployment

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Find related papers by JEL classification:
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Saint-Paul, Gilles, 1995. "The High Unemployment Trap," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 527-50, May. [Downloadable!] (restricted)
    Other versions:
  2. Edgar L. Feige, 2005. "The Underground Economy And The Currency Enigma," Macroeconomics 0502004, EconWPA. [Downloadable!]
  3. Dixon, Huw, 1999. "Controversy: On the Use of the 'Hidden Economy' Estimates," Economic Journal, Royal Economic Society, vol. 109(456), pages F335-37, June. [Downloadable!] (restricted)
  4. Tito Boeri & Axel Börsch-Supan & Guido Tabellini, 2001. "Would you like to shrink the welfare state? A survey of European citizens," Economic Policy, CEPR, CES, MSH, vol. 16(32), pages 7-50, 04. [Downloadable!] (restricted)
  5. Friedrich Schneider & Dominik H. Enste, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March. [Downloadable!] (restricted)
  6. Garibaldi, Pietro, 1999. "Search Unemployment with Advance Notice," CEPR Discussion Papers 2164, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Francesco Busato & Bruno Chiarini & Pasquale de Angelis & Elisabetta Marzano, 2005. "Capital Subsidies and the Underground Economy," Economics Working Papers 2005-10, School of Economics and Management, University of Aarhus. [Downloadable!]
  2. Ann-Sofie Kolm & Birthe Larsen, 2003. "Wages, Unemployment, and the Underground Economy," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  3. 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 Stephen M. Ross Business School. [Downloadable!]
  4. Elisabetta Marzano, 2004. "Dual Labour Market Theories And Irregular Jobs: Is There a Dualism Even in The Irregular Sector?," CELPE Discussion Papers 81, CELPE (Centre of Labour Economics and Economic Policy), University of Salerno, Italy. [Downloadable!]
  5. Étienne Wasmer, 2006. "Links between Labor Supply and Unemployment: Theory and Empirics," Cahiers de recherche 0615, CIRPEE. [Downloadable!]
  6. Koziarivska Larysa & Oliinyk Andrii, 2006. "Effects of the 2004 Personal Income Tax System Reform on the Shadow Sector in Ukraine," EERC Working Paper Series 06-08e, EERC Research Network, Russia and CIS. [Downloadable!]
  7. Maxim Bouev, 2004. "Diverging Paths: Transition in the Presence of the Informal Sector," William Davidson Institute Working Papers Series 2004-689, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  8. Maurizio Bovi, 2006. "The Cyclical Behavior of Shadow and Regular Employment," ISAE Working Papers 62, ISAE - Institute for Studies and Economic Analyses - (Rome, ITALY). [Downloadable!]
    Other versions:
  9. Giuseppe Bertola & Pietro Garibaldi, 2003. "The Structure and History of Italian Unemployment," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  10. Kolm, Anne-Sofie & Larsen, Birthe, 2003. "Wages, unemployment, and the underground economy," Working Papers 11-2003, Copenhagen Business School, Department of Economics. [Downloadable!]
  11. Kolm, Ann-Sofie & Larsen, Birthe, 2003. "Does Tax Evation Affect Unemployment and Educational Choice?," Working Paper Series 2003:22, Uppsala University, Department of Economics. [Downloadable!]
  12. Maurizio Bovi, 2004. "The Dark, And Independent, Side Of Italy," ISAE Working Papers 46, ISAE - Institute for Studies and Economic Analyses - (Rome, ITALY). [Downloadable!]
  13. Ekaterina Vostroknutova, 2003. "Shadow Economy, Rent-Seeking Activities and the Perils of Reinforcement of the Rule of Law," William Davidson Institute Working Papers Series 2003-578, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
    Other versions:
  14. Kolm, Ann-Sofie & Larsen, Birthe, 2006. "Does Tax Evasion Affect Unemployment and Educational Choice?," Working Papers 12-2003, Copenhagen Business School, Department of Economics. [Downloadable!]
  15. Trivellato, Ugo & Giraldo, Anna, 2003. "Assessing the 'Choosiness' of Job Seekers. An Exploratory Approach and Evidence for Italy," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  16. Francesco Busato, Bruno Chiarini, Pasquale de Angelis, Elisabetta Marzano, 2005. "Capital Subsidies and Underground Production," CELPE Discussion Papers 96, CELPE (Centre of Labour Economics and Economic Policy), University of Salerno, Italy. [Downloadable!]
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