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Skill Acquisition in the Informal Economy and Schooling Decisions: Evidence from Emerging Economies

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  • Tumen, Semih

Abstract

Informal jobs offer skill acquisition opportunities that may facilitate a future switch to formal employment for young workers. In this sense, informal training on the job may be a viable alternative to formal schooling in an economy with a large and diverse informal sector. In this paper, I investigate if these considerations are relevant for the schooling decisions of young individuals using panel data on 17 Latin American countries as well as micro-level data for Turkey. Specifically, I ask if the prevalence of informal jobs distort schooling attainment. I concentrate on three measures of schooling outcomes: (1) secondary education enrollment rate, (2) out-of-school rate for lower secondary school, and (3) tertiary education graduation rate. I find that the secondary education enrollment rate is negatively correlated with the size of the informal economy, while the out-of-school rate is positively correlated. This means that informal training on the job may be crowding out school education in developing countries. The tertiary education graduation rate, however, is positively correlated with the size of informal sector, which implies that a large informal economy induces college attendance for those who are more likely to succeed. Policies that can potentially affect the size of the informal sector should take into consideration these second-round effects on aggregate schooling outcomes.

Suggested Citation

  • Tumen, Semih, 2015. "Skill Acquisition in the Informal Economy and Schooling Decisions: Evidence from Emerging Economies," MPRA Paper 62909, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:62909
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    References listed on IDEAS

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    More about this item

    Keywords

    Informal economy; skill acquisition; schooling outcomes; Latin America; Turkey.;

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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