Informality, Self-employment, and Heterogeneous Managerial Ability: A Model for Developing Countries

Eliane El Badaoui, Frank Walsh, Eric Strobl, Olivier Bargain and Prudence Magejo

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Abstract: The view of informal employment as a last resort in the labour market has recently been challenged by numerous studies documenting the existence of a high degree of heterogeneity within the formal and informal sectors. In particular, informal self-employment/employment may be voluntary or forced. There is currently not much theoretical support for these observations. We develop a theoretical model of the labour market with both formal and informal firms and a distribution of managerial skills in the population. Consistent with existing empirical evidence, this setup reconciles the undesirable and productive forms of self-employment that coexist in the economy.

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Date: 2024
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Published in Journal of International Development, 2024, 36, pp.1293-1323

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04606281

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