Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/245459 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9278
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
In many developing economies rate of unemployment is increasing with skill accumulation and thereby leading to underemployment. Our paper offers to look at skill formation as a demand side problem not as a traditional supply side problem and also how skill formation or education affects unemployment among the remaining uneducated. We have developed a general equilibrium model of a small open developing economy incorporating skill formation, unemployment of unskilled labour in the formal sector and an informal sector which absorbs unemployed workers at a flexible wage rate. In this set up greater education for a group may generate educated unemployment within the group and increase unemployment of the uneducated outside the group leading to underemployment through the expansion of the informal sector. Both effects are due to shortage of complementary investment in production activities. Our theoretical findings are motivated by existing empirical evidence and a fresh empirical exercise undertaken using panel data of 32 countries.
Subjects: 
skill formation
informal employment
skilled-unskilled wage inequality
underemployment
JEL: 
J24
J31
E26
E24
Document Type: 
Working Paper
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