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Wages and Informality in Developing Countries

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  • Costas Meghir
  • Renata Narita
  • Jean-Marc Robin

Abstract

It is often argued that informal labor markets in developing countries promote growth by reducing the impact of regulation. On the other hand informality may reduce the amount of social protection offered to workers. We extend the wage-posting framework of Burdett and Mortensen (1998) to allow heterogeneous firms to decide whether to locate in the formal or the informal sector, as well as set wages. Workers engage in both off the job and on the job search. We estimate the model using Brazilian micro data and evaluate the labor market and welfare effects of policies towards informality.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18347.

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Date of creation: Aug 2012
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Handle: RePEc:nbr:nberwo:18347

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References

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  1. Petrongolo, Barbara & Pissarides, Christopher, 2000. "Looking Into The Black Box: A Survey Of The Matching Function," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2409, C.E.P.R. Discussion Papers.
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  3. Pratap, Sangeeta & Quintin, Erwan, 2006. "Are labor markets segmented in developing countries? A semiparametric approach," European Economic Review, Elsevier, Elsevier, vol. 50(7), pages 1817-1841, October.
  4. Bontemps, Christian & Robin, Jean-Marc & Van den Berg, Gerard J, 1999. "An Empirical Equilibrium Job Search Model with Search on the Job and Heterogeneous Workers and Firms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 1039-74, November.
  5. James Albrecht & Lucas Navarro & Susan Vroman, 2006. "The Effects of Labor Market Policies in an Economy with an Informal Sector," Working Papers, Georgetown University, Department of Economics gueconwpa~06-06-06, Georgetown University, Department of Economics.
  6. Jacques, Jean-François & Fugazza, Marco, 2004. "Labor market institutions, taxation and the underground economy," Economics Papers from University Paris Dauphine 123456789/1888, Paris Dauphine University.
  7. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  8. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  9. Berg, G.J. & Ridder, G., 1993. "An empirical equilibrium search model of the labour market," Serie Research Memoranda, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics 0039, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  10. Guillermo E. Perry & William F. Maloney & Omar S. Arias & Pablo Fajnzylber & Andrew D. Mason & Jaime Saavedra-Chanduvi, 2007. "Informality : Exit and Exclusion," World Bank Publications, The World Bank, number 6730, August.
  11. Gerard J. van den Berg, 2003. "Multiple Equilibria and Minimum Wages in Labor Markets with Informational Frictions and Heterogeneous Production Technologies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1337-1357, November.
  12. Jolivet, Gregory & Postel-Vinay, Fabien & Robin, Jean-Marc, 2006. "The empirical content of the job search model: Labor mobility and wage distributions in Europe and the US," European Economic Review, Elsevier, Elsevier, vol. 50(4), pages 877-907, May.
  13. El Badaoui, Eliane & Strobl, Eric & Walsh, Frank, 2007. "The Formal Sector Wage Premium and Firm Size," IZA Discussion Papers 3145, Institute for the Study of Labor (IZA).
  14. Gerard J. van den Berg, 1998. "Empirical Inference with Equilibrium Search Models of the Labor Market," Tinbergen Institute Discussion Papers 98-089/3, Tinbergen Institute.
  15. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(3), pages 699-726, August.
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  17. Mariano Bosch, 2006. "Job Creation and Job Destruction in the Presence of Informal Labour Markets," CEP Discussion Papers dp0761, Centre for Economic Performance, LSE.
  18. Bontemps, Christian & Robin, Jean-Marc & van den Berg, Gerard J, 2000. "Equilibrium Search with Continuous Productivity Dispersion: Theory and Nonparametric Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(2), pages 305-58, May.
  19. Ulyssea, Gabriel, 2010. "Regulation of entry, labor market institutions and the informal sector," Journal of Development Economics, Elsevier, Elsevier, vol. 91(1), pages 87-99, January.
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Cited by:
  1. Jorge Alonso-Ortiz & Julio Leal, 2013. "The elasticity of Informality to Taxes and tranfers," Working Papers, Centro de Investigacion Economica, ITAM 1308, Centro de Investigacion Economica, ITAM.
  2. Naoki Aizawa & Hanming Fang, 2013. "Equilibrium Labor Market Search and Health Insurance Reform," NBER Working Papers 18698, National Bureau of Economic Research, Inc.
  3. Naoki Aizawa & Hanming Fang, 2013. "Equilibrium Labor Market Search and Health Insurance Reform," PIER Working Paper Archive 13-002, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.

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