Product Market Regulation, Firm Size, Unemployment and Informality in Developing Economies
AbstractThis paper studies the impact of product and labor market regulations on the number and size of firms in the formal and informal sectors, as well as on relative wages, relative size of the two sectors and overall unemployment. We show that entry costs in the formal sector tend to make informal firms smaller and more numerous than informal firms, i.e., such costs render the informal sector relatively more competitive. Furthermore, it is possible to reduce informality without increasing unemployment or reducing workers’ wage by reducing entry costs in the formal sector rather than reducing labor market regulations. We also highlight a number of externalities stemming from labor and product market imperfections, allowing the size of those distortions to differ across sectors. We show that, while the so-called overhiring externality takes place in both sectors, this translates into a smaller relative size of the informal sector.
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Bibliographic InfoPaper provided by CIRPEE in its series Cahiers de recherche with number 1043.
Date of creation: 2010
Date of revision:
Informality; product and labor; market imperfections; firm size;
Other versions of this item:
- Charlot Olivier & Malherbet Franck & Terra Cristina, 2011. "Product market regulation, firm size, unemployment and informality in developing economies," THEMA Working Papers 2011-03, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- Olivier Charlot & Franck Malherbet & Cristina Terra, 2011. "Product market regulation, firm size, unemployment and informality in developing economies," Working Papers hal-00568676, HAL.
- Charlot, Olivier & Malherbet, Franck & Terra, Cristina, 2011. "Product Market Regulation, Firm Size, Unemployment and Informality in Developing Economies," IZA Discussion Papers 5519, Institute for the Study of Labor (IZA).
- E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- E26 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
- J60 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - General
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
- O1 - Economic Development, Technological Change, and Growth - - Economic Development
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-04 (All new papers)
- NEP-DGE-2010-12-04 (Dynamic General Equilibrium)
- NEP-LAB-2010-12-04 (Labour Economics)
- NEP-MAC-2010-12-04 (Macroeconomics)
- NEP-REG-2010-12-04 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Pierre Cahuc & Francois Marque & Etienne Wasmer, 2008.
"A Theory Of Wages And Labor Demand With Intra-Firm Bargaining And Matching Frictions,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(3), pages 943-972, 08.
- Cahuc, Pierre & Marque, François & Wasmer, Etienne, 2004. "A Theory of Wages and Labour Demand with Intra-firm Bargaining and Matching Frictions," CEPR Discussion Papers 4605, C.E.P.R. Discussion Papers.
- Basu, Arnab K. & Chau, Nancy & Kanbur, Ravi, 2011.
"Contractual Dualism, Market Power and Informality,"
IZA Discussion Papers
5845, Institute for the Study of Labor (IZA).
- Charlot, Olivier & Malherbet, Franck & Ulus, Mustafa, 2013.
"Unemployment Compensation and the Allocation of Labor in Developing Countries,"
GIAM Working Papers
13-3, Galatasaray University Economic Research Center.
- Charlot, Olivier & Malherbet, Franck & Ulus, Mustafa, 2013. "Unemployment Compensation and the Allocation of Labor in Developing Countries," IZA Discussion Papers 7233, Institute for the Study of Labor (IZA).
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