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Policies against informality in segmented labour markets: a general equilibrium analysis applied to Uruguay

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Author Info

  • Carmen Estrades

    ()
    (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)

  • María Inés Terra

    ()
    (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)

Abstract

In this paper we analyze the impact of some policies against informality on the labor market, poverty and income distribution in Uruguay, using a general equilibrium model that considers a dual labor market segmented by skill, and microsimulations. We simulate two sets of policies: payroll tax cuts and increased enforcement in the informal sector. Both sets of policies are effective in reducing informality. Payroll tax cuts on unskilled labor increase informality among medium-skilled workers, but in spite of that they are successful in reducing poverty and improving income distribution. Enforcement policies have a negative impact on wages, especially for unskilled workers. The net effect on poverty is two-sided: on the one hand this policy promotes an increase in poverty as a consequence of wages falling, but on the other hand poverty falls because the formal demand for labor increases.

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File URL: http://decon.edu.uy/publica/2008/0408(english%20version).pdf
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Bibliographic Info

Paper provided by Department of Economics - dECON in its series Documentos de Trabajo (working papers) with number 0408.

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Length: 29 pages
Date of creation: Dec 2007
Date of revision:
Handle: RePEc:ude:wpaper:0408

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Related research

Keywords: informality; labor market; general equilibrium; policies; poverty; microsimulations;

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Cited by:
  1. Carmen Estrades & María Inés Terra, 2009. "Commodity prices have risen sharply since 2006. This may benefit developing countries specialized on primary exports, but poverty may increase. Uruguay is a net exporter of primary products and a net ," Documentos de Trabajo (working papers) 3209, Department of Economics - dECON.

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