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Modeling The Participation Of Households And Firms In Formal And Informal Economic Activities


  • Pauna, Bianca

    () ( National Institute for Economic Research, Romanian Academy, Bucharest)


This paper presents a dynamic labor market model that describes the mechanisms through which individuals and firms take decisions regarding the supply of and the demand for formal and informal labor as a function of the prevailing market wage rates and other parameters. There are also presented the determinants and the characteristics of formal and informal labor supply schedules. The authors reach the conclusion that higher formal employment demands higher informal wages, ceteris paribus. Analyzing the formal and informal labor demand schedules, the conclusion is that higher formal employment levels result in higher reservation productivity, and vice versa, ceteris paribus. There are also analyzed the formal and informal employment equilibrium paths. (*The research was financed through a grant by the CERGE – EI foundation under a program of the Global Development Network. Additional funds for grantees have been provided by the Austrian Government through WIIW, Vienna).

Suggested Citation

  • Pauna, Bianca, 2004. "Modeling The Participation Of Households And Firms In Formal And Informal Economic Activities," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 1(4), pages 5-20, December.
  • Handle: RePEc:rjr:romjef:v:1:y:2004:i:4:p:5-20

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    More about this item


    informal economy; labor markets; companies’ and households’ behaviors; econometric modeling;

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory


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