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Labor Market Search, Informality, and On-The-Job Human Capital Accumulation

Author

Listed:
  • Matteo Bobba

    (Toulouse School of Economics, University of Toulouse Capitole)

  • Luca Flabbi

    (Department of Economics, University of North Carolina)

  • Santiago Levy

    (Vice-Presidency for Sectors and Knowledge, Inter-American Development Bank)

  • Mauricio Tejada

    (Department of Economics (ILADES), Universidad Alberto Hurtado)

Abstract

We develop a search and matching model where firms and workers produce output that depends both on match-specific productivity and on worker-specific human capital. The human capital is accumulated while working but depreciates while searching for a job. Jobs can be formal or informal and firms post the formality status. The equilibrium is characterized by an endogenous steady state distribution of human capital and by an endogenous formality rate. The model is estimated on longitudinal labor market data for Mexico. Human capital accumulation on-the-job is responsible for more than half of the overall value of production and upgrades more quickly while working formally than informally. Policy experiments reveal that the dynamics of human capital accumulation magnifies the negative impact on productivity of the labor market institutions that give raise to informality

Suggested Citation

  • Matteo Bobba & Luca Flabbi & Santiago Levy & Mauricio Tejada, 2019. "Labor Market Search, Informality, and On-The-Job Human Capital Accumulation," ILADES-UAH Working Papers inv326, Universidad Alberto Hurtado/School of Economics and Business.
    • Handle: RePEc:ila:ilades:inv326
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    Citations

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    Cited by:

    1. Abel,Martin & Carranza,Eliana & Geronimo,Kimberly Jean & Ortega Hesles,Maria Elena, 2022. "Can Temporary Wage Incentives Increase Formal Employment ? Experimental Evidence from Mexico," Policy Research Working Paper Series 10234, The World Bank.
    2. Salvador Valdés & Samuel Leyton, 2019. "Social insurance contributions: frequency vs. Earnings," Documentos de Trabajo 528, Instituto de Economia. Pontificia Universidad Católica de Chile..
    3. Temitope Sade AKINTUNDE & Abiodun Samuel ISAYOMI, 2023. "The Effect Of Informal Economy On Human Capital Development," Business & Management Compass, University of Economics Varna, issue 3, pages 182-195.
    4. Oliver Pardo, 2023. "Mandatory retirement savings in the presence of an informal labor market," Journal of Population Economics, Springer;European Society for Population Economics, vol. 36(4), pages 2857-2888, October.
    5. Chen, Xi & Wu, Xinyi, 2025. "Non-cognitive skills and earnings of informal workers in China," Economic Modelling, Elsevier, vol. 149(C).
    6. Mariano Bosch & Guillermo Cruces & Stephanie González & María Teresa Silva-Porto, 2025. "Large Firms and the Intensive Margin of Labor Informality Evidence from an Enforcement Intervention in Peru," Working Papers 172, Universidad de San Andres, Departamento de Economia, revised Sep 2025.
    7. Bettoni, Luis G. & Santos, Marcelo R., 2022. "Public sector employment and aggregate fluctuations," Journal of Macroeconomics, Elsevier, vol. 72(C).
    8. Xiao Guanjun & Chen Zhenming & Huang Liqing, 2024. "Mechanism Analysis and Response of Digital Financial Inclusion to Labor Economy based on ANN and Contribution Analysis," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 18(1), pages 1-17.
    9. Fang, Lan & Quan, Yurong & Mao, Hui & Chen, Shaojian, 2022. "The Information Communication Technology and Off-farm Employment of Rural Laborers: An Analysis Based on the Micro Data of China Family Panel Studies," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322088, Agricultural and Applied Economics Association.
    10. Matías Ciaschi & Guido Neidhöfer, 2024. "Job Loss and Household Labor Supply Adjustments in Developing Countries: Evidence from Argentina," The World Bank Economic Review, World Bank, vol. 38(3), pages 558-579.
    11. Xia Minglu, 2024. "Research on Measurement of Manufacturing Industry Chain Resilience Based on Index Contribution Model Driven by Digital Economy," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 18(1), pages 1-17.
    12. Flabbi, Luca & Tejada, Mauricio M., 2024. "Corrigendum to “Are Informal Self-Employment and Informal Employment as Employee Behaviorally Distinct Labor Force States?” [Economics Letters (2023) 111278]," Economics Letters, Elsevier, vol. 241(C).
    13. Fietz, Katharina & Lakemann, Tabea & Beber, Bernd & Priebe, Jan & Lay, Jann, 2025. "Formalizing employment in Africa's small firms: Experimental evidence from Côte D'Ivoire," Ruhr Economic Papers 1149, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    14. Samaniego de la Parra, Brenda & Otero-Cortés, Andrea & Fabio Morales, Leonardo, 2024. "The labor market effects of facilitating social security contributions under part-time employment contracts: Evidence from Colombia," Labour Economics, Elsevier, vol. 91(C).
    15. Fietz, Katharina & Lakemann, Tabea & Beber, Bernd & Priebe, Jan & Lay, Jann, 2025. "Formalizing employment in Africa's small firms: Experimental evidence from Côte d‘Ivoire," VfS Annual Conference 2025 (Cologne): Revival of Industrial Policy 325459, Verein für Socialpolitik / German Economic Association.
    16. Fernanda Marquez-Padilla & Susan W. Parker & Tom S. Vogl, 2025. "Rolling Back Progresa: School and Work After the End of a Landmark Anti-Poverty Program," NBER Working Papers 33527, National Bureau of Economic Research, Inc.
    17. Finamor, Lucas, 2024. "Labor Market Informality, Risk, and Insurance," MPRA Paper 121662, University Library of Munich, Germany.
    18. repec:ags:aaea22:335724 is not listed on IDEAS
    19. Matteo Bobba & Luca Flabbi & Santiago Levy, 2022. "Labor Market Search, Informality, And Schooling Investments," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(1), pages 211-259, February.

    More about this item

    Keywords

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    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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