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Shadow Employment and Labor Productivity Dynamics


  • Maurizio Bovi


This paper offers theoretical and empirical insights on the anecdotal 'buffer hypothesis', i.e. the view that the shadow employment functions as an improper tool for increasing the labor market flexibility. Official data for Italy support the premise. Although the contemporaneous correlation between Hodrick-Prescott-detrended shadow labor and output is positive and significant, as time passes their association looses momentum. The opposite is found for the regular employees. Because of their lower productivity level, the cyclical response of the hidden workers affects the short-term profile of the overall labor productivity. It adds new hints on the still puzzling 1990s productivity dynamics. Copyright 2007 The Author. Journal compilation CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd. 2007.

Suggested Citation

  • Maurizio Bovi, 2007. "Shadow Employment and Labor Productivity Dynamics," LABOUR, CEIS, vol. 21(4-5), pages 735-761, December.
  • Handle: RePEc:bla:labour:v:21:y:2007:i:4-5:p:735-761

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    References listed on IDEAS

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    Cited by:

    1. Maurizio Bovi & Peter Claeys, 2008. "Treasury V Dodgers. A Tale of Fiscal Consolidation and Tax Evasion," ISAE Working Papers 93 Classification-JEL E62, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
    2. Bruno Chiarini & Elisabetta Marzano, 2009. "Interaction between Underground Employment and Unions in Selected Italian Industries," Revue économique, Presses de Sciences-Po, vol. 60(5), pages 1155-1180.
    3. Castillo, Paul & Montoro, Carlos, 2010. "Monetary Policy in the presence of Informal Labour Markets," Working Papers 2010-009, Banco Central de Reserva del Perú.
    4. Enrico Marelli & Marcello Signorelli, 2010. "Employment, productivity and models of growth in the EU," International Journal of Manpower, Emerald Group Publishing, vol. 31(7), pages 732-754, October.
    5. Paul Castillo B. & Carlos Montoro Ll., 2012. "Inflation Dynamics in the Presence of Informal Labour Markets," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 15(1), pages 4-31, April.
    6. Soraya Roman, 2011. "Labour costs, informal economy and labor law reforms in Bolivia," Development Research Working Paper Series 08/2011, Institute for Advanced Development Studies.
    7. Restrepo-Echavarria, Paulina, 2014. "Macroeconomic volatility: The role of the informal economy," European Economic Review, Elsevier, vol. 70(C), pages 454-469.

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