Labor market search, informality, and on-the-job human capital accumulation

Abstract

Low contributions and loss of benefits for a large portion of the labor force. • Positive: Lower negative employment effects induced by some labor market institutions. • If informality is an optimal reaction to a given institutional context, then it is correlated with other labor market features that impact productivity. • There is evidence on strong correlations between firm's productivity and formality status (Busso et al., 2012). An important channel is the Distortions of firms' investment decisions (Paula and Scheinkman, 2011; Ulyssea, 2015). • The literature focusing on productivity and the worker side is scarce and rarely take into account workers' investment decisions. • Meghir et al. (2015) takes into account workers behavior and firms' productivity but it does not allow for workerss investment decision. • Bobba et al. (2017) focus on human capital accumulation decisions before entering the labor market.

Increasing the Cost of Informal Workers: Evidence from Mexico

“…Bosch and Maloney (2010) find high transitions across informal and formal jobs for Argentina, Brazil, and Mexico. Bobba et al (2020) find that 20 percent of workers transition to a formal job within a year of informal employment in Mexico. We contribute to this literature by distinguishing between transitions that occur without a change in the current employer.…”

“…A common approach is to develop a model where firms balance the benefits of participating in the formal sector 3 against the lower regulatory costs and the probability of punishment in the informal sector. Ulyssea (2018) and Bobba et al (2020) extend this literature by introducing informal jobs within formal firms. Their estimation approach is similar to the prior literature, however, in that their measures of the effects of increasing the cost of informality are based on policy counterfactuals based on the calibrated model.…”

“…registered with the government), and rationalized by arguing that the probability of being detected increases with firm size. 5 Ulyssea (2018) and Bobba et al (2020) expanded this literature by explicitly modeling firms' decision to formalize some of their workers (i.e. informality within formal firms).…”

“…In a concurrent paper,Bobba et al (2020) also decompose within and across firms informal-to-formal job transitions. They identify these transitions using worker self-reported tenure data.…”

“…In a related paper,Bobba et al (2020) also assume there is no bargaining over formality status. In their model, workers learn on the job and endogenous transitions from informal to formal jobs are due to human capital accumulation.…”