IDEAS home Printed from https://ideas.repec.org/p/xrp/wpaper/xreap2012-20.html
   My bibliography  Save this paper

Informality and overeducation in the labor market of a developing country

Author

Listed:
  • Paula Herrera-Idárraga

    () (AQR – IREA, University of Barcelona, Avda Diagonal, 690, 08034 Barcelona, Spain & Department of Economics, Pontificia Universidad Javeriana, Carrera 7 No. 40 – 62, Bogotá, Colombia.)

  • Enrique López-Bazo

    () (AQR – IREA, University of Barcelona, Avda Diagonal, 690, 08034 Barcelona, Spain & European Commission, Joint Research Center (JRC), Institute for Prospective Technological Studies (IPTS). Calle Inca Garcilaso 3, 41092 Sevilla, Spain.)

  • Elisabet Motellón

    () (AQR – IREA, University of Barcelona, Avda Diagonal, 690, 08034 Barcelona & Universitat Oberta de Catalunya, Avda Tibidabo 39-43, 08035 Barcelona, Spain.)

Abstract

In this paper, we explore the connection between labor market segmentation in two sectors, a modern protected formal sector and a traditional- unprotected-informal sector, and overeducation in a developing country. Informality is thought to have negative consequences, primarily through poorer working conditions, lack of social security, as well as low levels of productivity throughout the economy. This paper considers an aspect that has not been previously addressed, namely the fact that informality might also affect the way workers match their actual education with that required performing their job. We use micro-data from Colombia to test the relationship between overeducation and informality. Empirical results suggest that, once the endogeneity of employment choice has been accounted for, formal male workers are less likely to be overeducated. Interestingly, the propensity of being overeducated among women does not seem to be closely related to the employment choice.

Suggested Citation

  • Paula Herrera-Idárraga & Enrique López-Bazo & Elisabet Motellón, 2012. "Informality and overeducation in the labor market of a developing country," Working Papers XREAP2012-20, Xarxa de Referència en Economia Aplicada (XREAP), revised Nov 2012.
  • Handle: RePEc:xrp:wpaper:xreap2012-20
    as

    Download full text from publisher

    File URL: http://www.xreap.cat/RePEc/xrp/pdf/XREAP2012-20.pdf
    File Function: First version, 2012
    Download Restriction: no

    File URL: http://www.xreap.cat/RePEc/xrp/pdf/XREAP2012-20.pdf
    File Function: Revised version, 2012
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Green, Francis & McIntosh, Steven & Vignoles, Anna, 2002. "The Utilization of Education and Skills: Evidence from Britain," Manchester School, University of Manchester, vol. 70(6), pages 792-811, December.
    2. Pradhan, Menno & van Soest, Arthur, 1995. "Formal and informal sector employment in urban areas of Bolivia," Labour Economics, Elsevier, pages 275-297.
    3. Raúl Ramos & Esteban Sanromá, 2013. "Overeducation and Local Labour Markets in Spain," Tijdschrift voor Economische en Sociale Geografie, Royal Dutch Geographical Society KNAG, pages 278-291.
    4. Duncan, Greg J. & Hoffman, Saul D., 1981. "The incidence and wage effects of overeducation," Economics of Education Review, Elsevier, vol. 1(1), pages 75-86, February.
    5. Gong, Xiaodong & van Soest, Arthur, 2002. "Wage differentials and mobility in the urban labour market: a panel data analysis for Mexico," Labour Economics, Elsevier, vol. 9(4), pages 513-529, September.
    6. Eliane El Badaoui & Eric Strobl & Frank Walsh, 2008. "Is There an Informal Employment Wage Penalty? Evidence from South Africa," Economic Development and Cultural Change, University of Chicago Press, pages 683-710.
    7. Sicherman, Nachum & Galor, Oded, 1990. "A Theory of Career Mobility," Journal of Political Economy, University of Chicago Press, pages 169-192.
    8. Alfonso Alba-Ramírez, 1993. "Mismatch in the Spanish Labor Market: Overeducation?," Journal of Human Resources, University of Wisconsin Press, vol. 28(2), pages 259-278.
    9. Bauer, Thomas K., 2002. "Educational mismatch and wages: a panel analysis," Economics of Education Review, Elsevier, vol. 21(3), pages 221-229, June.
    10. Adriana Kugler & Maurice Kugler, 2003. "The labor market effects of payroll taxes in a middle-income country: Evidence from Colombia," Economics Working Papers 721, Department of Economics and Business, Universitat Pompeu Fabra.
    11. Séamus McGuinness, 2006. "Overeducation in the Labour Market," Journal of Economic Surveys, Wiley Blackwell, vol. 20(3), pages 387-418, July.
    12. Kiker, B. F. & Santos, Maria C. & de Oliveira, M. Mendes, 1997. "Overeducation and undereducation: Evidence for Portugal," Economics of Education Review, Elsevier, vol. 16(2), pages 111-125, April.
    13. H. Battu & C.R. Belfield & P.J. Sloane, 2000. "How Well Can We Measure Graduate Over- Education and Its Effects?," National Institute Economic Review, National Institute of Economic and Social Research, vol. 171(1), pages 82-93, January.
    14. Attanasio, Orazio & Goldberg, Pinelopi K. & Pavcnik, Nina, 2004. "Trade reforms and wage inequality in Colombia," Journal of Development Economics, Elsevier, pages 331-366.
    15. Attanasio, Orazio & Goldberg, Pinelopi K. & Pavcnik, Nina, 2004. "Trade reforms and wage inequality in Colombia," Journal of Development Economics, Elsevier, pages 331-366.
    16. Raúl Ramos & Esteban Sanromá, 2013. "Overeducation and Local Labour Markets in Spain," Tijdschrift voor Economische en Sociale Geografie, Royal Dutch Geographical Society KNAG, pages 278-291.
    17. Richard R. Verdugo & Naomi Turner Verdugo, 1989. "The Impact of Surplus Schooling on Earnings: Some Additional Findings," Journal of Human Resources, University of Wisconsin Press, vol. 24(4), pages 629-643.
    18. Cohen-Zada, Danny & Elder, Todd, 2009. "Historical religious concentrations and the effects of Catholic schooling," Journal of Urban Economics, Elsevier, vol. 66(1), pages 65-74, July.
    19. Hill, M Anne, 1983. "Female Labor Force Participation in Developing and Developed Countries-Consideration of the Informal Sector," The Review of Economics and Statistics, MIT Press, pages 459-468.
    20. Camilo Mondragón-Vélez & Ximena Peña & Daniel Wills, 2010. "Labor Market Rigidities and Informality in Colombia," DOCUMENTOS CEDE 006717, UNIVERSIDAD DE LOS ANDES-CEDE.
    21. Dolton, Peter & Vignoles, Anna, 2000. "The incidence and effects of overeducation in the U.K. graduate labour market," Economics of Education Review, Elsevier, vol. 19(2), pages 179-198, April.
    22. Aysit Tansel, 1999. "Formal Versus Informal Sector Choice of Wage Earners and their Wages in Turkey," Working Papers 9927, Economic Research Forum, revised Sep 1999.
    23. Charlot, Olivier & Decreuse, Bruno, 2005. "Self-selection in education with matching frictions," Labour Economics, Elsevier, vol. 12(2), pages 251-267, April.
    24. William N. Evans & Robert M. Schwab, 1995. "Finishing High School and Starting College: Do Catholic Schools Make a Difference?," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 941-974.
    25. Fernando Botelho & Vladimir Ponczek, 2011. "Segmentation in the Brazilian Labor Market," Economic Development and Cultural Change, University of Chicago Press, vol. 59(2), pages 437-463.
    26. Jhon James Mora, 2004. "Sobre-educación en Cali (Colombia) ¿Desequilibrio Temporal o Permanente?: Algunas Idea, 2000-2003," REVISTA DE ECONOMÍA Y ADMINISTRACIÓN, UNIVERSIDAD AUTÓNOMA DE OCCIDENTE, October.
    27. Suzanne Duryea & Sebastian Galiani & Hugo Ñopo & Claudia Piras, 2007. "The Educational Gender Gap in Latin America and the Caribbean," Research Department Publications 4510, Inter-American Development Bank, Research Department.
    28. Mavromaras, Kostas & McGuinness, Seamus, 2012. "Overskilling dynamics and education pathways," Economics of Education Review, Elsevier, pages 619-628.
    29. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, pages 1159-1178.
    30. Hartog, Joop & Oosterbeek, Hessel, 1988. "Education, allocation and earnings in the Netherlands: 0verschooling?," Economics of Education Review, Elsevier, vol. 7(2), pages 185-194, April.
    31. Kim, Young-Joo, 2011. "Catholic schools or school quality? The effects of Catholic schools on labor market outcomes," Economics of Education Review, Elsevier, vol. 30(3), pages 546-558, June.
    32. McGoldrick, KimMarie & Robst, John, 1996. "Gender Differences in Overeducation: A Test of the Theory of Differential Overqualification," American Economic Review, American Economic Association, pages 280-284.
    33. Goldberg, Pinelopi Koujianou & Pavcnik, Nina, 2005. "Trade, wages, and the political economy of trade protection: evidence from the Colombian trade reforms," Journal of International Economics, Elsevier, pages 75-105.
    34. Pratap, Sangeeta & Quintin, Erwan, 2006. "Are labor markets segmented in developing countries? A semiparametric approach," European Economic Review, Elsevier, vol. 50(7), pages 1817-1841, October.
    35. Quinn, Michael A. & Rubb, Stephen, 2006. "Mexico's labor market: The importance of education-occupation matching on wages and productivity in developing countries," Economics of Education Review, Elsevier, vol. 25(2), pages 147-156, April.
    36. Buchel, Felix & van Ham, Maarten, 2003. "Overeducation, regional labor markets, and spatial flexibility," Journal of Urban Economics, Elsevier, pages 482-493.
    37. Amaral, Pedro S. & Quintin, Erwan, 2006. "A competitive model of the informal sector," Journal of Monetary Economics, Elsevier, pages 1541-1553.
    38. Magnac, Th, 1991. "Segmented or Competitive Labor Markets," Econometrica, Econometric Society, vol. 59(1), pages 165-187, January.
    39. Mendes de Oliveira, M. & Santos, M. C. & Kiker, B. F., 2000. "The role of human capital and technological change in overeducation," Economics of Education Review, Elsevier, vol. 19(2), pages 199-206, April.
    40. Sicherman, Nachum, 1991. ""Overeducation" in the Labor Market," Journal of Labor Economics, University of Chicago Press, vol. 9(2), pages 101-122, April.
    41. Arnaud Chevalier, 2003. "Measuring Over-education," Economica, London School of Economics and Political Science, vol. 70(279), pages 509-531, August.
    42. S. Mcguinness, 2003. "Graduate overeducation as a sheepskin effect: evidence from Northern Ireland," Applied Economics, Taylor & Francis Journals, vol. 35(5), pages 597-608.
    43. Berry, A. & Sabot, R. H., 1978. "Labour market performance in developing countries: A survey," World Development, Elsevier, vol. 6(11-12), pages 1199-1242.
    44. Mehta, Aashish & Felipe, Jesus & Quising, Pilipinas & Camingue, Sheila, 2011. "Overeducation in developing economies: How can we test for it, and what does it mean?," Economics of Education Review, Elsevier, vol. 30(6), pages 1334-1347.
    45. Camilo Mondragón-Vélez & Ximena Peña & Daniel Wills, 2010. "Labor Market Rigidities and Informality in Colombia," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Fall 2010), pages 65-101, August.
    46. Russell W. Rumberger, 1987. "The Impact of Surplus Schooling on Productivity and Earnings," Journal of Human Resources, University of Wisconsin Press, vol. 22(1), pages 24-50.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tareq Sadeq, 2014. "Formal-Informal Gap in Return to Schooling and Penalty to Education-Occupation Mismatch a Comparative Study for Egypt, Jordan, and Palestine," Working Papers 894, Economic Research Forum, revised Dec 2014.

    More about this item

    Keywords

    Segmented labor markets; Formal/Informal employment; Human capital; Economic development;

    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:xrp:wpaper:xreap2012-20. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (XREAP). General contact details of provider: http://edirc.repec.org/data/xreapes.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.