IDEAS home Printed from https://ideas.repec.org/p/ekd/002625/2861.html
   My bibliography  Save this paper

Informal labor market and access to education in developing economies

Author

Listed:
  • Therese REBIERE

Abstract

This paper studies the impact of access to education in a search and matching model of the labor market representing a developping economy. It then addresses the issue of the impact on the market efficiency of public policies aiming at increasing education. Developing economies are well known for having a large pool of uneducated (low-productive) workers in the informal sector whereas the formal sector captures almost all educated (higher-productive) workers. Access to education may therefore distort the structure of the labor market and thus global output.To address this issue, we consider a segmented labor market with a formal sector and an informal sector. 3 states coexists: unemployment, formal employment and informal employment. Uneducated workers are forced to apply to the informal sector whereas educated workers may apply in both sectors depending on model specifications. The formal sector is subject to market frictions whereas the competitive wage clears the informal labor market. Unemployment thus only exists in the formal sector and acts as a pool of entry to formal employment. Informal employees may possibly search on-the-job for a formal job. This last feature of the model implies that modifying access to education distorts the repartition of workers in the labor market. Two assumptions are made: first, education is increased by external intervention (international subvention to education). Second, education is self-financed by taxes paid by the formal sector (the local government faces a budget constraint). We compare the decentralized equilibrium situation to the social planner equilibrium.Without any foundings consideration, 1) increasing education raises the number of workers applying in the formal sector. In the presence of search frictions in this sector, the probability of obtaining a formal job is reduced as well as formal job wages. 2) The asset values of informal and formal workers are getting closer which discourages informal on-the-job seeker to look for a formal job. The two impacts leads to opposite effect on informality. Further results on efficiency are on the run.

Suggested Citation

  • Therese REBIERE, 2011. "Informal labor market and access to education in developing economies," EcoMod2011 2861, EcoMod.
    • Handle: RePEc:ekd:002625:2861
    as

    Download full text from publisher

    File URL: http://ecomod.net/system/files/InformalityLMbis.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Gong, Xiaodong & Van Soest, Arthur & Villagomez, Elizabeth, 2004. "Mobility in the Urban Labor Market: A Panel Data Analysis for Mexico," Economic Development and Cultural Change, University of Chicago Press, vol. 53(1), pages 1-36, October.
    2. Gong, Xiaodong & van Soest, Arthur, 2002. "Wage differentials and mobility in the urban labour market: a panel data analysis for Mexico," Labour Economics, Elsevier, vol. 9(4), pages 513-529, September.
    3. 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, July.
    4. repec:dau:papers:123456789/1888 is not listed on IDEAS
    5. Olivier Charlot & Franck Malherbet & Cristina Terra, 2010. "Product Market Regulation, Firm Size, Unemployment and Informality in Developing Economies," Cahiers de recherche 1043, CIRPEE.
    6. Fields, Gary S., 1975. "Rural-urban migration, urban unemployment and underemployment, and job-search activity in LDCs," Journal of Development Economics, Elsevier, vol. 2(2), pages 165-187, June.
    7. Mathan Satchi & Jonathan Temple, 2009. "Labor Markets and Productivity in Developing Countries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 183-204, January.
    8. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July.
    9. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627, Elsevier.
    10. 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.
    11. Fields, Gary S, 1974. "The Private Demand for Education in Relation to Labour Market Conditions in Less-Developed Countries," Economic Journal, Royal Economic Society, vol. 84(336), pages 906-925, December.
    12. Magnac, Th, 1991. "Segmented or Competitive Labor Markets," Econometrica, Econometric Society, vol. 59(1), pages 165-187, January.
    13. Mathan Satchi & Jonathan Temple, 2009. "Labor Markets and Productivity in Developing Countries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 183-204, January.
    14. Jeffrey A. Frankel & Christopher A. Pissarides (ed.), 2007. "NBER International Seminar on Macroeconomics 2005," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262562294, December.
    15. 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.
    16. Fields, Gary S., 1974. "The allocation of resources to education in less developed countries," Journal of Public Economics, Elsevier, vol. 3(2), pages 133-143, May.
    17. Jeffrey A. Frankel & Christopher Pissarides, 2007. "NBER International Seminar on Macroeconomics 2005," NBER Books, National Bureau of Economic Research, Inc, number fran07-1, March.
    18. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 279-298.
    19. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-142, March.
    20. Heckman, James J & Sedlacek, Guilherme, 1985. "Heterogeneity, Aggregation, and Market Wage Functions: An Empirical Model of Self-selection in the Labor Market," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1077-1125, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kameliia Petrova, 2016. "Entrepreneurship And The Informal Economy: An Empirical Analysis," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 21(02), pages 1-21, June.
    2. 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, July.
    3. Zenou, Yves, 2011. "Search, migration, and urban land use: The case of transportation policies," Journal of Development Economics, Elsevier, vol. 96(2), pages 174-187, November.
    4. Nicoletta Batini & Young-Bae Kim & Paul Levine & Emanuela Lotti, 2009. "Informal Labour and Credit Markets: A Survey," School of Economics Discussion Papers 0609, School of Economics, University of Surrey.
    5. 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.
    6. Bosch, Mariano & Maloney, William F., 2010. "Comparative analysis of labor market dynamics using Markov processes: An application to informality," Labour Economics, Elsevier, vol. 17(4), pages 621-631, August.
    7. Luz Adriana Florez, 2015. "The Search and Matching Equilibrium in an Economy with an Informal Sector: A Positive Analysis of Labour Market Policies," Revista Desarrollo y Sociedad, Universidad de los Andes,Facultad de Economía, CEDE, August.
    8. Olivier Bargain & Prudence Kwenda, 2014. "The Informal Sector Wage Gap: New Evidence Using Quantile Estimations on Panel Data," Economic Development and Cultural Change, University of Chicago Press, vol. 63(1), pages 117-153.
    9. Huikang Ying, 2015. "Labour Informality, Selective Migration, and Productivity in General Equilibrium," Bristol Economics Discussion Papers 15/653, School of Economics, University of Bristol, UK.
    10. Albertini, Julien & Terriau, Anthony, 2019. "Informality over the life-cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 105(C), pages 182-202.
    11. Maarek, Paul, 2012. "Labor share, informal sector and development," MPRA Paper 38756, University Library of Munich, Germany.
    12. Karlygash Kuralbayeva, 2019. "Environmental Taxation, Employment and Public Spending in Developing Countries," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 72(4), pages 877-912, April.
    13. Olivier Bargain & Prudence Kwenda, 2009. "The Informal Sector Wage Gap: New Evidence Using Quantile Regressions on Panel Data," CEDI Discussion Paper Series 09-06, Centre for Economic Development and Institutions(CEDI), Brunel University.
    14. Henley, Andrew & Arabsheibani, G. Reza & Carneiro, Francisco G., 2009. "On Defining and Measuring the Informal Sector: Evidence from Brazil," World Development, Elsevier, vol. 37(5), pages 992-1003, May.
    15. 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.
    16. Alonso-Ortiz, Jorge & Leal Ordonez, Julio, 2014. "Cross-subsidies, and the elasticity of informality to social expenditures," MPRA Paper 59613, University Library of Munich, Germany.
    17. Olivier Charlot & Franck Malherbet & Mustafa Ulus, 2016. "Unemployment Compensation and the Allocation of Labor in Developing Countries," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 18(3), pages 385-416, June.
    18. Charlot, Olivier & Malherbet, Franck & Terra, Cristina, 2015. "Informality in developing economies: Regulation and fiscal policies," Journal of Economic Dynamics and Control, Elsevier, vol. 51(C), pages 1-27.
    19. Mathan Satchi & Jonathan Temple, 2009. "Labor Markets and Productivity in Developing Countries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 183-204, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ekd:002625:2861. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Theresa Leary (email available below). General contact details of provider: https://edirc.repec.org/data/ecomoea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.