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A Search Model with Self-Employment and Heterogeneity in Managerial Ability

Author

Listed:
  • Eliane Badaoui
  • Olivier Bargain
  • Prudence Magejo
  • 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 the presence of high-tier informal work corresponding to voluntary self-employment. There is currently not much theoretical support for these observations. We develop a formal model to explain this growing empirical evidence about substantial heterogeneity within formal/informal labour markets. In our model, workers may enter self-employment or search for jobs as employees, while allowing for heterogeneity across workers’ managerial ability. While workers with higher managerial ability will manage larger firms, workers with lower managerial ability will manage smaller firms and be in self-employment only when they cannot find a salaried formal/informal job. For the latter, self-employment in the informal sector is the outside employment option.

Suggested Citation

  • Eliane Badaoui & Olivier Bargain & Prudence Magejo & Eric Strobl & Frank Walsh, 2023. "A Search Model with Self-Employment and Heterogeneity in Managerial Ability," EconomiX Working Papers 2023-9, University of Paris Nanterre, EconomiX.
  • Handle: RePEc:drm:wpaper:2023-9
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    References listed on IDEAS

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    More about this item

    Keywords

    Self-employment; Managerial ability; Informal sector.;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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