A Matching Model of Endogenous Growth and Underground Firms

Gaetano Lisi and Maurizio Pugno

EERI Research Paper Series from Economics and Econometrics Research Institute (EERI), Brussels

Abstract: A matching model will explain both unemployment and economic growth by considering the underground sector and human capital. Three problems can thus be simultaneously accounted for: (i) the persistence of the underground sector, (ii) the ambiguous relationships between underground employment and unemployment, and (iii) between growth and unemployment. Key assumptions are that entrepreneurial ability is heterogeneous, skill accumulation determines productivity growth, job-seekers choose whether to invest in education. The conclusions are that the least able entrepreneurs, whose number is endogenous, set up underground firms, employ unskilled labour, and do not contribute to growth. If the monitoring rate is sufficiently low, underground employment alleviates unemployment, but the economy grows at lower rates.

Keywords: Matching models; endogenous growth; underground economy; entrepreneurship; unemployment. (search for similar items in EconPapers)
JEL-codes: E26 J24 J6 L26 (search for similar items in EconPapers)
Date: 2012-01-03
New Economics Papers: this item is included in nep-dge, nep-ent, nep-fdg, nep-iue, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: A matching model of endogenous growth and underground firms (2015)
Working Paper: A Matching Model of Endogenous Growth and Underground Firms (2015)
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