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Macroeconomic adjustment with segmented labor markets

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  • Agenor, Pierre-Richard
  • Aizenman, Joshua

Abstract

This paper analyzes the macroeconomic effects of fiscal and labor market policies in developing countries. The basic framework considers a small open economy with a large informal production sector and a heterogeneous work force. The labor market is segmented as a result of efficiency considerations and minimum wage laws. The basic model is then extended to account for unemployment benefits, income taxation, and imperfect labor mobility across sectors. The analysis indicates, among other results, that a reduction in unemployement benefits has a positive effect on output of tradable goods by lowering both the level of efficiency wages and the relative rent captured by skilled workers.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 58 (1999)
Issue (Month): 2 (April)
Pages: 277-296

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Handle: RePEc:eee:deveco:v:58:y:1999:i:2:p:277-296

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  1. Pisauro, Giuseppe, 1991. "The effect of taxes on labour in efficiency wage models," Journal of Public Economics, Elsevier, vol. 46(3), pages 329-345, December.
  2. Julio A. Santaella & Pierre-Richard Agénor, 1993. "Efficiency Wages and Labor Mobility in an Open Economy," IMF Working Papers 93/79, International Monetary Fund.
  3. Lindbeck, A. & Snower, D.J., 1990. "Segmented Labour Markets and Unemployment," Papers 483, Stockholm - International Economic Studies.
  4. Agenor, Pierre-Richard & Aizenman, Joshua, 1997. "Technological change, relative wages, and unemployment," European Economic Review, Elsevier, vol. 41(2), pages 187-205, February.
  5. Agenor, Pierre-Richard & Santaella, Julio A., 1998. "Efficiency wages, disinflation and labor mobility," Journal of Economic Dynamics and Control, Elsevier, vol. 22(2), pages 267-291, February.
  6. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-42, March.
  7. Edwards, Sebastian, 1988. "Terms of Trade, Tariffs, and Labor Market Adjustment in Developing Countries," World Bank Economic Review, World Bank Group, vol. 2(2), pages 165-85, May.
  8. Aizenman, Joshua, 1989. "Country Risk, Incomplete Information and Taxes on International Borrowing," Economic Journal, Royal Economic Society, vol. 99(394), pages 147-61, March.
  9. Dimitri G. Demekas, 1990. "Labor Market Segmentation in a Two-Sector Model of An Open Economy," IMF Working Papers 90/33, International Monetary Fund.
  10. Horton, Susan & Kanbur, Ravi & Mazumdar, Dipak, 1991. "Labor markets in an era of adjustment : an overview," Policy Research Working Paper Series 694, The World Bank.
  11. Carmichael, H Lorne, 1990. "Efficiency Wage Models of Unemployment--One View," Economic Inquiry, Western Economic Association International, vol. 28(2), pages 269-95, April.
  12. Drazen, Allan, 1986. "Optimal Minimum Wage Legislation," Economic Journal, Royal Economic Society, vol. 96(383), pages 774-84, September.
  13. Mazumdar, Dipak, 1983. "Segmented Labor Markets in LDCs," American Economic Review, American Economic Association, vol. 73(2), pages 254-59, May.
  14. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
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