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Labor Market Policies, Informal Labor Markets, and Wage Dispersion☆

In: Inequality after the 20th Century: Papers from the Sixth ECINEQ Meeting

Author

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  • Claudia Trentini

Abstract

In the last decade, Argentina has experienced a considerable decline in informal employment and wage dispersion. This paper extends a search model with exogenous human capital accumulation to include the informal sector. The model is parametrized to match Argentinian data between 1996 and 1998 – before the onset of the declining trend – and it is used to investigate the contribution of labor market measures to the falling informality, unemployment, and wage dispersion. The findings indicate that institutional factors did not contribute to the positive labor market trends observed; on the contrary, results show that higher severance pay and minimum wages increase informality and that the introduction of unemployment assistance contributed to the spread of informal contracts across the work force. Further, I find that compliance with minimum wage regulation strongly affects the final impact of these policies. While non perfect compliance might reduce unemployment, it reinforces the incentives of workers to move to the informal sector.

Suggested Citation

  • Claudia Trentini, 2016. "Labor Market Policies, Informal Labor Markets, and Wage Dispersion☆," Research on Economic Inequality, in: Inequality after the 20th Century: Papers from the Sixth ECINEQ Meeting, volume 24, pages 83-120, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:reinzz:s1049-258520160000024005
    DOI: 10.1108/S1049-258520160000024005
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    Cited by:

    1. Facundo Quiroga‐Martínez & Esteban Fernández‐Vázquez, 2021. "Education as a key to reduce spatial inequalities and informality in Argentinean regional labour markets," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(1), pages 177-189, February.

    More about this item

    Keywords

    Informal sector; inequality; unemployment; search models; human capital accumulation; J64; J31; O17; I3;
    All these keywords.

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

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