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Informal Unemployment and Education

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Abstract

This paper develops a four sector equilibrium search and matching model with informal sector employment opportunities and educational choice. We show that underground activities reduce educational at- tainments if informal employment opportunities mainly are available to low educated workers. More zealous enforcement policy will in this case improve educational incentives as it reduces the attractiveness of remaining a low educated worker. Characterizing the optimal enforce- ment policies, we nd that relatively more audits should be targeted towards the sector employing low educated workers, elsewise a too low stock of educated workers is materialized.

Suggested Citation

  • Larsen, Birthe, 2011. "Informal Unemployment and Education," Working Papers 02-2011, Copenhagen Business School, Department of Economics.
  • Handle: RePEc:hhs:cbsnow:2011_002
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    References listed on IDEAS

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    1. Bosch, Mariano & Esteban-Pretel, Julen, 2012. "Job creation and job destruction in the presence of informal markets," Journal of Development Economics, Elsevier, vol. 98(2), pages 270-286.
    2. Costas Meghir & Renata Narita & Jean-Marc Robin, 2015. "Wages and Informality in Developing Countries," American Economic Review, American Economic Association, vol. 105(4), pages 1509-1546, April.
    3. Charlot, Olivier & Decreuse, Bruno & Granier, Pierre, 2005. "Adaptability, productivity, and educational incentives in a matching model," European Economic Review, Elsevier, vol. 49(4), pages 1007-1032, May.
    4. repec:dau:papers:123456789/1888 is not listed on IDEAS
    5. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 818-860, June.
    6. Stefan D. HAIGNER & Stefan JENEWEIN & Friedrich SCHNEIDER & Florian WAKOLBINGER, 2013. "Driving forces of informal labour supply and demand in Germany," International Labour Review, International Labour Organization, vol. 152(3-4), pages 507-524, December.
    7. Acemoglu, Daron & Shimer, Robert, 1999. "Holdups and Efficiency with Search Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 827-849, November.
    8. Henrik Jacobsen Kleven & Martin B. Knudsen & Claus Thustrup Kreiner & Søren Pedersen & Emmanuel Saez, 2011. "Unwilling or Unable to Cheat? Evidence From a Tax Audit Experiment in Denmark," Econometrica, Econometric Society, vol. 79(3), pages 651-692, May.
    9. 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.
    10. Daron Acemoglu, 1996. "A Microfoundation for Social Increasing Returns in Human Capital Accumulation," The Quarterly Journal of Economics, Oxford University Press, vol. 111(3), pages 779-804.
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    Keywords

    labor market; education;

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies

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