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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. 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.
  2. 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.
  3. Ansgar Belke & Rainer Fehn & Neil Foster, 2003. "Does Venture Capital Investment Spur Employment Growth?," Vienna Economics Papers 0303, University of Vienna, Department of Economics.
  4. Kolml, Ann-Sofie & Larsen, Birthe, 2010. "The Black Economy and Education," Research Papers in Economics 2010:3, Stockholm University, Department of Economics.
  5. Uwe Dulleck & Paul Frijters & Rudolf Winter-Ebmer, 2003. "Reducing start-up costs for New Firms: The double dividend on the labor market," Economics working papers 2003-13, Department of Economics, Johannes Kepler University Linz, Austria.
  6. 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.
  7. Christopher A. Pissarides, 2002. "Company Start-Up Costs and Employment," CEP Discussion Papers dp0520, Centre for Economic Performance, LSE.
  8. James Albrecht & Lucas Navarro & Susan Vroman, 2009. "The Effects of Labour Market Policies in an Economy with an Informal Sector," Economic Journal, Royal Economic Society, vol. 119(539), pages 1105-1129, 07.
  9. Pugno, Maurizio & Lisi, Gaetano, 2010. "Entrepreneurship and the Hidden Economy: An Extended Matching Model," MPRA Paper 25301, University Library of Munich, Germany.
  10. Tito Boeri & Pietro Garibaldi, 2006. "Shadow Sorting," Carlo Alberto Notebooks 10, Collegio Carlo Alberto.
    • 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.
  11. 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.
  12. Rafael La Porta & Andrei Shleifer, 2008. "The Unofficial Economy and Economic Development," NBER Working Papers 14520, National Bureau of Economic Research, Inc.
  13. 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.
  14. Audretsch, David B & Keilbach, Max, 2003. "Entrepreneurship Capital and Economic Performance," CEPR Discussion Papers 3678, C.E.P.R. Discussion Papers.
  15. 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.
  16. David B. Audretsch, 2007. "Entrepreneurship capital and economic growth," Oxford Review of Economic Policy, Oxford University Press, vol. 23(1), pages 63-78, Spring.
  17. Kolm, Anne-Sofie & Larsen, Birthe, 2003. "Wages, unemployment, and the underground economy," Working Papers 11-2003, Copenhagen Business School, Department of Economics.
  18. 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.
  19. Tito Boeri & Pietro Garibaldi, . "Shadow Activity and Unemployment in a Depressed Labor Market," Working Papers 177, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  20. Lawrence Uren, 2007. "Entrepreneurship and labour market fluctuations," Economics Bulletin, AccessEcon, vol. 10(13), pages 1-11.
  21. 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.
  22. Tanzi, Vito, 1999. "Uses and Abuses of Estimates of the Underground Economy," Economic Journal, Royal Economic Society, vol. 109(456), pages F338-47, June.
  23. repec:ebl:ecbull:v:10:y:2007:i:13:p:1-11 is not listed on IDEAS
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