Occupational Choice and Investments in Human Capital in Informal Economies

Lucila Berniell

The B.E. Journal of Macroeconomics, 2021, vol. 21, issue 2, 399-423

Abstract: Informality 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.

Keywords: entrepreneurship; human capital; informality; occupational choice (search for similar items in EconPapers)
JEL-codes: E26 J24 L26 O17 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://doi.org/10.1515/bejm-2020-0024 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
Working Paper: Occupational Choice and Investments in Human Capital in Informal Economies (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:bejmac:v:21:y:2021:i:2:p:399-423:n:3

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/bejm/html

DOI: 10.1515/bejm-2020-0024

Access Statistics for this article

The B.E. Journal of Macroeconomics is currently edited by Arpad Abraham and Tiago Cavalcanti

More articles in The B.E. Journal of Macroeconomics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().