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Labor Markets and Productivity in Developing Countries

Author

Listed:
  • Mathan Satchi

    (University of Kent)

  • Jonathan Temple

    (University of Bristol)

Abstract

In middle-income countries, the informal sector often accounts for a substantial fraction of the urban labor force. We develop a general equilibrium model with matching frictions in the urban labor market, the possibility of self-employment in the informal sector, and scope for rural-urban migration. We investigate the effects of labor market institutions, different types of growth, and company taxes on labor market outcomes and aggregate productivity. We quantify these effects by calibrating the model to data for Mexico, and show that matching frictions can lead to a large informal sector when formal sector workers have substantial bargaining power. (Copyright: Elsevier)

Suggested Citation

  • Mathan Satchi & Jonathan Temple, 2009. "Labor Markets and Productivity in Developing Countries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 183-204, January.
  • Handle: RePEc:red:issued:06-167
    DOI: 10.1016/j.red.2008.09.001
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    More about this item

    Keywords

    Informal sector; Urban unemployment; Dual economy; Matching frictions;
    All these keywords.

    JEL classification:

    • J40 - Labor and Demographic Economics - - Particular Labor Markets - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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