Scandinavian Working Papers in Economics

Working Papers,
Copenhagen Business School, Department of Economics

No 02-2011: Informal Unemployment and Education

Birthe Larsen
Additional contact information
Birthe Larsen: Department of Economics, Copenhagen Business School, Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark

Abstract: This paper develops a four sector equilibrium search and matching model with informal sector employment opportunities and educational choice. We show that underground activities reduce educational at- tainments if informal employment opportunities mainly are available to low educated workers. More zealous enforcement policy will in this case improve educational incentives as it reduces the attractiveness of remaining a low educated worker. Characterizing the optimal enforce- ment policies, we nd that relatively more audits should be targeted towards the sector employing low educated workers, elsewise a too low stock of educated workers is materialized.

Keywords: labor market; education

JEL-codes: J08

48 pages, December 31, 2011

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