A matching model will explain both unemployment and economic growth by considering the underground sector and human capital. Three problems can thus be simultaneously accounted for: (i) the persistence of the underground sector, (ii) the ambiguous relationships between underground employment and...

A matching model will explain both unemployment and economic growth by considering the underground sector. Three problems can thus be simultaneously accounted for: (i) the persistence of underground economy, (ii) the ambiguous relationships between underground employment and unemployment, and...

This paper develops a standard matching model to address the problem of the hidden sector, as it is characterised in Italy, i.e. framed in a rather advanced economic and institutional setting, but also linked to the socio-economic regional dualism. The main novel features of the model are that...

The underground economy crucially affects growth and unemployment in both developed and developing countries. Nevertheless, this widespread phenomenon does not appear in the basic model for macroeconomic analysis, namely the Aggregate Demand-Aggregate Supply (or simply AD-AS) model. Therefore,...

A general equilibrium model is proposed which assumes that firms hire both official and unregistered workers as imperfect substitutes, that entrepreneurs differ in their ability to increase the efficiency of official labour, and that this ability is due to heterogeneous original ability and to...