Three Empirical Essays on Education and Informality in the Labor Market of a Developing Country: The Colombian Case

Abstract

1) Informality and Overeducation in the Labor Market of a Developing Country

This chapter explores the connection between labor market segmentation in two sectors, a modern protected formal sector and a traditional- unprotected-informal sector, and overeducation in a developing country. Informality is thought to have negative consequences, primarily through poorer working conditions, lack of social security, as well as low levels of productivity throughout the economy. This chapter considers an aspect that has not been previously addressed, namely the fact that informality might also affect the way workers match their actual education with that required performing their job. Using micro-data from Colombia the relationship between overeducation and informality is tested. Empirical results suggest that, once the endogeneity of employment choice has been accounted for, formal male workers are less likely to be overeducated. Interestingly, the propensity of being overeducated among women does not seem to be closely related to the sector choice.

2) Double Penalty in Returns to Education: Informality and Educational Mismatch in the Colombian Labor Market

This chapter examines the returns to education taking into consideration the existence of educational mismatches in the formal and informal employment of a developing country. Results show that the returns of surplus, required and deficit years of schooling are different in the two sectors. Moreover, they suggest that these returns vary along the wage distribution, and that the pattern of variation differs for formal and informal workers. In particular, informal workers face not only lower returns to their education, but suffer a second penalty associated with educational mismatches that puts them at a greater disadvantage compare to their formal counterparts.

3) Wage Gaps Across Colombian Regions: The Role of Education and Informality

This chapter analyzes the role of education and informality on regional wage differentials. The hypothesis that is put under examination is that apart from the difference in the endowments of human capital across regions, regional heterogeneity in the incidence of informality may be another important source of regional wage inequality. The results for Colombian regions confirm marked differences in wage distributions between regions and that they differ in the endowment of human capital and more importantly in the incidence of informality. Regional heterogeneity in returns to education is especially intense in the upper part of the wage distribution. While heterogeneity in the informal pay penalty throughout the territory is more relevant in the lower part of the wage distribution.