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Entrepreneurship, On-the-job Search and Informal Jobs

  • Lisi, G.

    (Department of Economics, University of Cassino, Italy)

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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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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  1. repec:ebl:ecbull:v:10:y:2007:i:13:p:1-11 is not listed on IDEAS
  2. Ann-Sofie Kolm & Birthe Larsen, 2003. "Wages, Unemployment, and the Underground Economy," CESifo Working Paper Series 1086, CESifo Group Munich.
  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.
  4. David B. Audretsch, 2007. "Entrepreneurship capital and economic growth," Oxford Review of Economic Policy, Oxford University Press, vol. 23(1), pages 63-78, Spring.
  5. Kolml, Ann-Sofie & Larsen, Birthe, 2010. "The Black Economy and Education," Research Papers in Economics 2010:3, Stockholm University, Department of Economics.
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  7. Petrongolo, Barbara & Pissarides, Christopher, 2000. "Looking Into The Black Box: A Survey Of The Matching Function," CEPR Discussion Papers 2409, C.E.P.R. Discussion Papers.
  8. 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.
  9. 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.
  10. Lawrence Uren, 2007. "Entrepreneurship and labour market fluctuations," Economics Bulletin, AccessEcon, vol. 10(13), pages 1-11.
  11. 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.
  12. Dulleck, Uwe & Frijters, Paul & Winter-Ebmer, Rudolf, 2003. "Reducing Start-up Costs for New Firms: The Double Dividend on the Labor Market," Economics Series 146, Institute for Advanced Studies.
  13. Boeri, Tito & Garibaldi, Pietro, 2002. "Shadow Activity and Unemployment in a Depressed Labour Market," CEPR Discussion Papers 3433, C.E.P.R. Discussion Papers.
  14. Albrecht, James & Navarro, Lucas & Vroman, Susan, 2006. "The Effects of Labor Market Policies in an Economy with an Informal Sector," IZA Discussion Papers 2141, Institute for the Study of Labor (IZA).
  15. 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.
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  17. Fugazza, Marco & Jacques, Jean-Francois, 2004. "Labor market institutions, taxation and the underground economy," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 395-418, January.
  18. Christopher Pissarides, 2002. "Company start-up costs and employment," LSE Research Online Documents on Economics 2200, London School of Economics and Political Science, LSE Library.
  19. Pugno, Maurizio & Lisi, Gaetano, 2010. "Entrepreneurship and the Hidden Economy: An Extended Matching Model," MPRA Paper 25301, University Library of Munich, Germany.
  20. 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.
  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. 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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