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Institutions, Informal Labor Markets, and Business Cycle Volatility

Alan Finkelstein Shapiro ()

Economía Journal, 2015, vol. Volume 16 Number 1, issue Fall 2015, 77-112

Abstract: I build a business cycle labor search-and-matching model with informal labor mar- kets, which shows that different dimensions of institutional quality have similar effects on the size of the informal sector, but different effects on the relationship between informality and long-run macroeconomic outcomes and between informality and labor market volatility. For the same change in informal sector size, changes in different proxies for institutional quality have contrasting quantitative implications for the steady state and the volatility of the labor market, despite having similar consequences on other macroeconomic variables. These results highlight the importance of identifying the source behind changes in the size of the informal sector to char- acterize the link between informality and business cycle dynamics.

Keywords: Business cycles; informality; labor search (search for similar items in EconPapers)
JEL-codes: E02 E24 E26 E32 (search for similar items in EconPapers)
Date: 2015
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