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Wages and Informality in Developing Countries

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  • Meghir, Costas
  • Narita, Renata
  • Robin, Jean-Marc

Abstract

It is often argued that informal labor markets in developing countries promote growth by reducing the impact of regulation. On the other hand informality may reduce the amount of social protection offered to workers. We extend the wage-posting framework of Burdett and Mortensen (1998) to allow heterogeneous firms to decide whether to locate in the formal or the informal sector, as well as set wages. Workers engage in both off the job and on the job search. We estimate the model using Brazilian micro data and evaluate the labor market and welfare effects of policies towards informality.

Suggested Citation

  • Meghir, Costas & Narita, Renata & Robin, Jean-Marc, 2012. "Wages and Informality in Developing Countries," Center Discussion Papers 136024, Yale University, Economic Growth Center.
  • Handle: RePEc:ags:yaleeg:136024
    DOI: 10.22004/ag.econ.136024
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    More about this item

    Keywords

    Consumer/Household Economics; Labor and Human Capital; Production Economics; Research Methods/ Statistical Methods;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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