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Labor Market Segmentation in a Two-Sector Model of An Open Economy

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  • Dimitri G. Demekas

Abstract

The paper examines formally the effects of labor market segmentation in a two-sector open economy model. The model demonstrates how the structure of the labor market affects the real exchange rate, defined as the relative price of traded and home goods, and is then used to examine the effects of two common labor market policies: increasing the degree of primary market coverage, and implementing wage restraint in the primary market. It is shown that increasing the degree of primary market coverage increases unemployment and leads to a real appreciation. Real wage restraint in the primary market, on the other hand, reduces unemployment, and has ambiguous but probably small effects on the real exchange rate.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 90/33.

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Length: 32
Date of creation: 01 Apr 1990
Date of revision:
Handle: RePEc:imf:imfwpa:90/33

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Cited by:
  1. Agenor, Pierre-Richard & Aizenman, Joshua, 1999. "Macroeconomic adjustment with segmented labor markets," Journal of Development Economics, Elsevier, Elsevier, vol. 58(2), pages 277-296, April.
  2. Agenor, Pierre-Richard & Santaella, Julio A., 1998. "Efficiency wages, disinflation and labor mobility," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 22(2), pages 267-291, February.
  3. Ahmed, Habib & Miller, Stephen M., 1997. "Monetary and exchange rate policy in multisectoral economies," Journal of Economics and Business, Elsevier, Elsevier, vol. 49(4), pages 321-334.
  4. Blinova, Tatiana & Rusanovsky, Victor, 2002. "Economic policy and unemployment in Russia´s regions," ERSA conference papers ersa02p234, European Regional Science Association.
  5. Blinova, Tatiana V., 2002. "Rural Development and Unemployment Reduction," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain, European Association of Agricultural Economists 24821, European Association of Agricultural Economists.
  6. Amélie Barbier-Gauchard & Francesco De Palma & Giuseppe Diana, 2012. "Currency devaluation with dual labor market : Which perspectives for the Euro Zone ?," Working Papers of BETA 2012-04, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  7. Blinova Tatiana & Rusanovsky Victor, 2002. "Economic Policy, Industrial Structure, and Unemployment in Russia's Regions," EERC Working Paper Series 01-06e, EERC Research Network, Russia and CIS.
  8. Kalulumia, Pene & Nyankiye, Francine, 2000. "Labor Adjustment Costs, Macroeconomic Shocks and Real Business Cycles in a Small Open Economy," Journal of Macroeconomics, Elsevier, Elsevier, vol. 22(4), pages 671-694, October.
  9. Tatiana Blinova & Victor Rusanovsky, 2003. "Regional strategies and Unemployment Risks in Russia’s Regional Labor markets (?)," ERSA conference papers ersa03p454, European Regional Science Association.

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