The implications of capital-skill complementarity in economies with large informal sectors
AbstractIn most developing nations, formal workers tend to be more experienced, more educated, and earn more than informal workers. These facts are often interpreted as evidence that low-skill workers face barriers to entry into the formal sector. Yet, there exists little direct evidence that such barriers are important. This paper describes a model where significant differences arise between formal and informal workers even though labor markets are perfectly competitive. In equilibrium, the informal sector emphasizes low-skill work because informal managers have access to less outside financing, and choose to substitute low-skill labor for physical capital.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Dallas in its series Center for Latin America Working Papers with number 0404.
Date of creation: 2004
Date of revision:
Other versions of this item:
- Pedro S. Amaral & Erwan Quintin, 2003. "The Implications of Capital-Skill Complementarity in Economies with Large Informal Sectors," Macroeconomics 0309017, EconWPA.
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
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