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Heterogeneity in the Returns to Education and Informal Activities
Código: WPE – 221
Antonio F. Galvao
Fábio Augusto Reis Gomes
This paper investigates the e¤ects of schooling on agents informal earnings. We present a two-period model of informal activities and schooling, and test its implications using a survey of informal workers in Brazil. The model implies that there exists an education premium in the informal sector, at least for high skilled workers. We estimate the model using instrumental variables quantile regression approach, which is able to accommodate an interaction between education and unobserved ability in the earnings function. The findings suggest that returns to schooling are positive and monotonically increasing along the quantiles of the earnings distribution.