Advanced Search
MyIDEAS: Login to save this paper or follow this series

Macroeconomic Adjustment with Segmented Labor Markets

Contents:

Author Info

  • Pierre-Richard Agenor
  • Joshua Aizenman

Abstract

This paper analyzes the macroeconomic effects of fiscal and labor market policies in a small open developing country. The basic framework considers an 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. Under the assumption of perfect labor mobility, we show that a permanent reduction in government spending on nontraded goods leads in the long run to a depreciation of the real exchange rate, a fall in the market-clearing wage for unskilled labor, an increase in output of traded goods, and a lower stock of net foreign assets. A permanent reduction in the minimum wage for unskilled workers improves competitiveness, and expands the formal sector at the expense of the informal sector. Hence, in a two-sector economy in which the minimum wage is enforced only in the formal sector and wages in one segment of the labor market are competitively determined, efficiency wage considerations do not alter the standard neoclassical presumption. A reduction in unemployment benefits is also shown to have a positive effect on output of tradable goods by lowering both the level of efficiency wages and the employment rent of skilled workers.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w4769.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4769.

as in new window
Length:
Date of creation: Jun 1994
Date of revision:
Publication status: published as Journal of Development Economics, Vol. 58 (April 1999): 277-296.
Handle: RePEc:nbr:nberwo:4769

Note: ITI
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
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.:
as in new window
  1. 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.
  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. Agenor, Pierre-Richard & Aizenman, Joshua, 1997. "Technological change, relative wages, and unemployment," European Economic Review, Elsevier, vol. 41(2), pages 187-205, February.
  4. Julio A. Santaella & Pierre-Richard Agénor, 1993. "Efficiency Wages and Labor Mobility in an Open Economy," IMF Working Papers 93/79, International Monetary Fund.
  5. Dimitri G. Demekas, 1990. "Labor Market Segmentation in a Two-Sector Model of An Open Economy," IMF Working Papers 90/33, International Monetary Fund.
  6. Aizenman, Joshua, 1989. "Country Risk, Incomplete Information and Taxes on International Borrowing," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 99(394), pages 147-61, March.
  7. Lindbeck, A. & Snower, D.J., 1990. "Segmented Labour Markets and Unemployment," Papers, Stockholm - International Economic Studies 483, Stockholm - International Economic Studies.
  8. 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.
  9. Mazumdar, Dipak, 1983. "Segmented Labor Markets in LDCs," American Economic Review, American Economic Association, vol. 73(2), pages 254-59, May.
  10. Drazen, Allan, 1986. "Optimal Minimum Wage Legislation," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 96(383), pages 774-84, September.
  11. 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.
  12. Edwards, Sebastian, 1988. "Terms of Trade, Tariffs, and Labor Market Adjustment in Developing Countries," World Bank Economic Review, World Bank Group, World Bank Group, vol. 2(2), pages 165-85, May.
  13. Carmichael, H Lorne, 1990. "Efficiency Wage Models of Unemployment--One View," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 28(2), pages 269-95, April.
  14. 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.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4769. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.