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The Cyclical Behaviour of Shadow and Regular Employment

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  • Maurizio Bovi

    (Institute for Studies & Economic Analyses ISAE)

Abstract

Using the Hodrick-Prescott filter, this paper examines the cyclical properties of the Italian labour market. Its main contribution is the empirical analysis of three different labour inputs - regular employees, regular self-employed and underground workers. Results from VAR models support the widespread view that the shadow employment functions as an improper tool for increasing the flexibility of the labour market. While the contemporaneous correlation between shadow labour and output is significant, as time passes their association looses momentum. The opposite is found for regular employees, which show significant positive correlations only with lagged output gaps. Somewhat puzzling, self- employment seems to be the less sensitive to the course of business cycles. The skewness of input distributions suggests that hiring employees is easier than firing them, while this can not be said for the other two labour gaps. Disaggregate data tell different stories. For instance, in the manufacturing sector the hidden employment is not correlated with the output, while in the trade sector the acyclical input turns out to be the recorded employees. In the transport industry, where no labour input follow the cycle, regular employees are more fired than hired.

Suggested Citation

  • Maurizio Bovi, 2005. "The Cyclical Behaviour of Shadow and Regular Employment," Labor and Demography 0507011, EconWPA.
  • Handle: RePEc:wpa:wuwpla:0507011
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    References listed on IDEAS

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    1. Giuseppe Nicoletti & Stefano Scarpetta & Olivier Boylaud, 2000. "Summary Indicators of Product Market Regulation with an Extension to Employment Protection Legislation," OECD Economics Department Working Papers 226, OECD Publishing.
    2. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
    3. David Giles, 1997. "Causality between the measured and underground economies in New Zealand," Applied Economics Letters, Taylor & Francis Journals, vol. 4(1), pages 63-67.
    4. Uhlig, H.F.H.V.S. & Ravn, M., 1997. "On Adjusting the H-P Filter for the Frequency of Observations," Discussion Paper 1997-50, Tilburg University, Center for Economic Research.
    5. repec:dau:papers:123456789/1888 is not listed on IDEAS
    6. Carillo, Maria Rosaria & Pugno, Maurizio, 2004. "The underground economy and underdevelopment," Economic Systems, Elsevier, vol. 28(3), pages 257-279, September.
    7. Maurizio Bovi, 2005. "The Dark, and Independent, Side of the Italian Labour Market," LABOUR, CEIS, vol. 19(4), pages 721-748, December.
    8. Lawrence J. Christiano & Terry J. Fitzgerald, 2003. "The Band Pass Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, May.
    9. Francesco Busato & Bruno Chiarini, 2004. "Market and underground activities in a two-sector dynamic equilibrium model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 23(4), pages 831-861, May.
    10. Giuseppe Bertola & Pietro Garibaldi, 2003. "The Structure and History of Italian Unemployment," CESifo Working Paper Series 907, CESifo Group Munich.
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    12. Tito Boeri & Pietro Garibaldi, "undated". "Shadow Activity and Unemployment in a Depressed Labor Market," Working Papers 177, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    13. Jay Pil Choi & Marcel Thum, 2005. "Corruption And The Shadow Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 817-836, August.
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    Cited by:

    1. Joanna Tyrowicz & Stanisław Cichocki, 2011. "Employed unemployed? On shadow employment in transition," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 38(2), pages 259-281, May.
    2. Joanna Tyrowicz & Stanisław Cichocki, 2010. "Employed Unemployed? On Shadow Employment During Transition," Working Papers 2010-05, Faculty of Economic Sciences, University of Warsaw.

    More about this item

    Keywords

    Underground economy; VAR models; Labour Flexibility; Business Cycle.;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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