The Cyclical Behavior of Shadow and Regular Employment

Maurizio Bovi ()

No 62, ISAE Working Papers from ISAE - Institute for Studies and Economic Analyses - (Rome, ITALY)

Abstract: Using data from the Italian Institute of Statistics, I examine the cyclical properties of three labor inputs - regular employees, regular self-employed, and underground workers. Results support the widespread view that, in Italy, the shadow employment functions as an improper tool for increasing the labor market flexibility. My analysis uncovers more details. While the contemporaneous correlation between shadow labor and output is significant, as time passes their association looses momentum. The opposite is found for regular employees, which show significant positive correlations with lagged output gaps only. Somewhat puzzling, self-employment seems to be the less sensitive to the course of business cycles. Possibly, hidden employment substitutes it as shock-absorber. Sectoral data tell different stories.

Keywords: Underground economy; VAR models; Labor Market Flexibility, Business Cycle (search for similar items in EconPapers)
JEL-codes: C32 C53 E26 H26 J30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2006-01
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Related works:
Working Paper: The Cyclical Behaviour of Shadow and Regular Employment (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:isa:wpaper:62

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