Informal Unemployment and Education

Ann-Sofie Kolm, Birthe Larsen

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Abstract

This paper develops a four-sector equilibrium search and matching model with informal sector employment opportunities and educational choice. We show that underground activities reduce educational attainments if informal employment opportunities mainly are available for low-educated workers. A more zealous enforcement policy will in this case improve educational incentives as it reduces the attractiveness of remaining a low-educated worker. However, unemployment also increases. Characterizing the optimal enforcement policies, we find that relatively more audits should be targeted towards the sector employing low-educated workers; elsewise, a too low stock of educated workers is materialized.
OriginalsprogEngelsk
Artikelnummer8
TidsskriftIZA Journal of Labor Economics
Vol/bind5
Udgave nummer1
Antal sider36
ISSN2193-8997
DOI
StatusUdgivet - 2016

Emneord

  • Tax evasion
  • The informal sector
  • Education
  • Matching
  • Unemployment

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