Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Occupational Choice and Investments in Human Capital in Informal Economies

Occupational Choice and Investments in Human Capital in Informal Economies AbstractInformality is pervasive in many developing countries and it can affect occupational and educational decisions. Cross-country data shows that the rate of entrepreneurship as well as the gap between the skill premium for entrepreneurs and for workers increase with the size of the informal economy. Also, in countries with larger informal sectors the fraction of high-skilled individuals that choose to be entrepreneurs is larger. To explain these facts, I develop a model economy with human capital investments, occupational choice and an informal sector, in which the investment in human capital improves the efficiency of labor as well as managerial skills, and the technology to produce goods exhibits capital-skill complementarity. Model predictions can account for cross-country evidence and also shed light on the mechanisms at work when the level of informality in the economy increases. In particular, a higher level of informality discourages human capital investments for workers while it incentivizes these investments for the case of some managers, mostly informal but talented. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The B.E. Journal of Macroeconomics de Gruyter

Occupational Choice and Investments in Human Capital in Informal Economies

Berniell, Lucila
The B.E. Journal of Macroeconomics , Volume 21 (2): 25 – Jul 15, 2021
Download PDF
25 pages

Loading next page...
 
/lp/de-gruyter/occupational-choice-and-investments-in-human-capital-in-informal-7NzszxmQ7q
Publisher
de Gruyter
Copyright
© 2020 Walter de Gruyter GmbH, Berlin/Boston
ISSN
1935-1690
eISSN
1935-1690
DOI
10.1515/bejm-2020-0024
Publisher site
See Article on Publisher Site

Abstract

AbstractInformality is pervasive in many developing countries and it can affect occupational and educational decisions. Cross-country data shows that the rate of entrepreneurship as well as the gap between the skill premium for entrepreneurs and for workers increase with the size of the informal economy. Also, in countries with larger informal sectors the fraction of high-skilled individuals that choose to be entrepreneurs is larger. To explain these facts, I develop a model economy with human capital investments, occupational choice and an informal sector, in which the investment in human capital improves the efficiency of labor as well as managerial skills, and the technology to produce goods exhibits capital-skill complementarity. Model predictions can account for cross-country evidence and also shed light on the mechanisms at work when the level of informality in the economy increases. In particular, a higher level of informality discourages human capital investments for workers while it incentivizes these investments for the case of some managers, mostly informal but talented.

Journal

The B.E. Journal of Macroeconomics – de Gruyter

Published: Jul 15, 2021

Keywords: entrepreneurship; human capital; informality; occupational choice; E26; J24; L26; O17

There are no references for this article.