Currency devaluation with dual labor market : Which perspectives for the Euro Zone ?
AbstractIn this paper, we assume a world of two countries in a fixed exchange rate system. The main difference between the two countries lies in the features of their labor markets. In the home country, we assume the existence of a dual labor market, with formal and informal sectors. In the foreign country, the labor market is homogeneous and characterized by a nominal wage rigidity. In this context, the situation of labor market in each country is not optimal through a misallocation of workers between sectors in domestic economy, and unemployment in foreign economy. Our article shows that a devaluation of domestic currency implies a fall in production in each country, an increase in unemployment in foreign economy and a worse reallocation of workers by a growth of informal sector in domestic economy.
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Bibliographic InfoPaper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2012-04.
Date of creation: 2012
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efficiency wage; dualism; exchange rate; devaluation.;
Find related papers by JEL classification:
- F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-08 (All new papers)
- NEP-IUE-2012-07-08 (Informal & Underground Economics)
- NEP-LAB-2012-07-08 (Labour Economics)
- NEP-OPM-2012-07-08 (Open Economy Macroeconomics)
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