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Informal Wage And Formal Sector Productivity : Theory And Evidences From India


  • Dibyendu Maiti


  • Sugata Marjit


We express a doubt on the conventional wisdom namely, of a positive relationship between wage and productivity, of a formal sector firm in a developing economy where the firm can either go for subcontracting to the informal sector to minimize wage cost along with apprehension of extra-legal cost and/or investment in R&D for in-house production. We show that a rise of the formal wage does not necessarily ensure higher R&D and labour-productivity of the formal firm while a rise of the informal sector wage must improve R&D and the resultant labour-productivity in the firm. Thus countries with a vast segment of lowly-paid informal workers will also exhibit lowly-productive formal sector workers.

Suggested Citation

  • Dibyendu Maiti & Sugata Marjit, 2009. "Informal Wage And Formal Sector Productivity : Theory And Evidences From India," Labor Economics Working Papers 22928, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:laborw:22928

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    Cited by:

    1. Sanjay RODE, 2015. "Employment Pattern, Skills and Training Issues among Informal Sector Workers in Mumbai Metropolitan Region," Economia. Seria Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 18(1), pages 125-138, June.
    2. repec:eee:jeborg:v:137:y:2017:i:c:p:90-104 is not listed on IDEAS

    More about this item


    Informal Wage; poverty; Labour Productivity; R&D Investment; Outsourcing;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures


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