Informality and Overeducation in the Labor Market of a Developing Country

In this paper, we explore the connection between labor market segmentation in two sectors, amodern protected formal sector and a traditional- unprotected-informal sector, and overeducation in adeveloping country. Informality is thought to have negative consequences, primarily through poorer workingconditions, lack of social security, as well as low levels of productivity throughout the economy. This paperconsiders an aspect that has not been previously addressed, namely the fact that informality might also affect theway workers match their actual education with that required performing their job. We use micro-data fromColombia to test the relationship between overeducation and informality. Empirical results suggest that, oncethe endogeneity of employment choice has been accounted for, formal male workers are less likely to beovereducated. Interestingly, the propensity of being overeducated among women does not seem to be closelyrelated to the sector choice.