Is formalization of the labour market counter-productive for increasing employment levels?

Vincent's paper addresses whether formalization affects unemployment and whether this nexus is nonlinear in nature. Using a balanced panel dataset of 90 developing countries from 2001-2019, the paper finds robust evidence that for at least half of the countries in the sample, there is a long-run positive relationship between formalization and unemployment. However, this relationship is also nonlinear-formalization solves the unemployment problem only in countries with extremely low levels of formal employment.
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