Labor Market Search and Informality with Endogenous Schooling Investments

Conférencier(e) : Luca Flabbi (UNC -- Chapel Hill)

Invité par : Marion Goussé

Many labor markets, typically in medium- and low-income countries, are characterized by high levels of informality. While informality may constitute an important margin to increase labor market flexibility, it may also dampen firms' and workers' productivity. This paper explores one long-term effect of informality: the possible under-investment in individuals' education extit{prior} to labor market entry. To do so, we formalize the presence of informal job  opportunities in a search-matching-bargaining model of the labor market with endogenous schooling decisions. We estimate the model on individual-level data from the Mexican labor force survey. Estimation results show reasonable values of the estimated parameters, including those harder to identify like the firms' costs of evading the labor regulations and the workers' valuation of the extra-wage benefits for both legal and illegal contracts. Counterfactual experiments varying key policy parameters allow us to quantify the channels through which labor market frictions inhibit schooling investments.

Travail conjoint avec: Matteo Bobba (Toulouse School of Economics) et Santiago Levy (IDB)