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Informality, self‐employment and heterogeneous managerial ability: A model for developing countries

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  • Eliane Badaoui
  • Olivier Bargain
  • Prudence Kwenda
  • Eric Strobl
  • Frank Walsh

Abstract

The view of informal employment as a last resort in the labour market has recently been challenged by numerous studies documenting the existence of a high degree of heterogeneity within the formal and informal sectors. In particular, informal self‐employment/employment may be voluntary or forced. There is currently not much theoretical support for these observations. We develop a theoretical model of the labour market with both formal and informal firms and a distribution of managerial skills in the population. Consistent with existing empirical evidence, this setup reconciles the undesirable and productive forms of self‐employment that coexist in the economy.

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  • Eliane Badaoui & Olivier Bargain & Prudence Kwenda & Eric Strobl & Frank Walsh, 2024. "Informality, self‐employment and heterogeneous managerial ability: A model for developing countries," Journal of International Development, John Wiley & Sons, Ltd., vol. 36(2), pages 1293-1323, March.
    • Handle: RePEc:wly:jintdv:v:36:y:2024:i:2:p:1293-1323
    DOI: 10.1002/jid.3847
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