Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/174080
Authors: 
Bobba, Matteo
Flabbi, Luca
Levy Algazi, Santiago
Year of Publication: 
2017
Series/Report no.: 
IZA Discussion Papers 11170
Abstract: 
We develop a search and matching model where firms and workers are allowed to form matches (jobs) that can be formal or informal. Workers optimally choose the level of schooling acquired before entering the labor market and whether searching for a job as unemployed or as self-employed. Firms optimally decide the formality status of the job and bargain with workers over wages. The resulting equilibrium size of the informal sector is an endogenous function of labor market parameters and institutions. We focus on an increasingly important institution: a "dual" social protection system whereby contributory benefits in the formal sector coexist with non-contributory benefits in the informal sector. We estimate preferences for the system – together with all the other structural parameters of the labor market – using labor force survey data from Mexico and the time-staggered entry across municipalities of a non-contributory social program. Policy experiments show that informality may be reduced by either increasing or decreasing the payroll tax rate in the formal sector. They also show that a universal social security benefit system would decrease informality, incentivize schooling, and increase productivity at a relative fiscal cost that is similar to the one generated by the current system.
Subjects: 
labor market frictions
search and matching
Nash bargaining
informality
returns to schooling
JEL: 
J24
J3
J64
O17
Document Type: 
Working Paper
Social Media Mentions:

Files in This Item:
File
Size
801.81 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.