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The Black Economy and Education

This paper develops and equilibrium search and matching model with informal sector employment opportunities and educational choice. We show that informal sector job opportunities distort educational attainment inducing a too low stock of educated workers. As informal job opportunities to a larger extent face low skilled workers, combating the informal sector improves welfare as it increases the incentives for education. However, too aggressive combating of the informal sector is not optimal as that induces inefficiently high unemployment rates.

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File URL: http://www2.ne.su.se/paper/wp10_03.pdf
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Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2010:3.

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Length: 27 pages
Date of creation: 02 Feb 2010
Date of revision:
Handle: RePEc:hhs:sunrpe:2010_0003
Contact details of provider: Postal: Department of Economics, Stockholm, S-106 91 Stockholm, Sweden
Phone: +46 8 16 20 00
Fax: +46 8 16 14 25
Web page: http://www.ne.su.se/
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  1. van den Bergh, Gerhard & van deer Klaauw, Bas, 2001. "Counseling and monitoring of unemployed workers: theory and evidence from a controlled social experiment," Working Paper Series 2001:12, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  2. James Albrecht & Lucas Navarro & Susan Vroman, 2006. "The Effects of Labor Market Policies in an Economy with an Informal Sector," Working Papers gueconwpa~06-06-06, Georgetown University, Department of Economics.
  3. Kolm, A.S. & Larsen, B., 2001. "Wages, Unemployment, and the Underground Economy," Papers 2001:08, Uppsala - Working Paper Series.
  4. Kolm, Ann-Sofie & Larsen, Birthe, 2002. "Social norm, the informal sector and unemployment," Working Papers 04-2002, Copenhagen Business School, Department of Economics.
  5. Joel Slemrod & Shlomo Yitzhaki, 2000. "Tax Avoidance, Evasion, and Administration," NBER Working Papers 7473, National Bureau of Economic Research, Inc.
  6. Kenneth Burdett & Ricardo Lagos & Randall Wright, 2002. "Crime, Inequality, and Unemployment, Second Version," PIER Working Paper Archive 03-029, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 Sep 2003.
  7. Pestieau, P. & Possen, U.M., 1988. "Tax Evasion And Occupational Choice," Papers 404, Cornell - Department of Economics.
  8. 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.
  9. 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.
  10. Freeman, Richard B., 1999. "The economics of crime," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 52, pages 3529-3571 Elsevier.
  11. Cremer, Helmuth & Gahvari, Firouz, 1993. "Tax evasion and optimal commodity taxation," Journal of Public Economics, Elsevier, vol. 50(2), pages 261-275, February.
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