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Modeling Labor Market Segmentation

Author

Listed:
  • Luis Araujo
  • Vladimir Ponczek

Abstract

In this paper, we develop a model that captures stylized facts of informal labor markets. We show how justice interference on informal contracts leads to penalties in the equilibrium wage of informal workers. We also state that, in a repeated game situation, an equilibrium where the wage gaps between formal and informal contracts diminish with the worker skills exists and is unique. These claims are supported by two assumptions: (i) the existence of a technology that makes possible a ?rm to buy information about the worker productivity and past actions; (ii) unskilled workers have a more homogenous productivity than the skilled workers.

Suggested Citation

  • Luis Araujo & Vladimir Ponczek, 2009. "Modeling Labor Market Segmentation," Working Papers 09_04, Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto.
  • Handle: RePEc:fea:wpaper:09_04
    as

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    File URL: ftp://cpq.fearp.usp.br:2300/textos_discussao/eco/wpe09_04.pdf
    File Function: First version, 2009
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    References listed on IDEAS

    as
    1. James R. Tybout, 2000. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 11-44, March.
    2. Lehmann, Hartmut & Pignatti, Norberto, 2007. "Informal Employment Relationships and Labor Market Segmentation in Transition Economies: Evidence from Ukraine," IZA Discussion Papers 3269, Institute for the Study of Labor (IZA).
    3. Pradhan, Menno & van Soest, Arthur, 1995. "Formal and informal sector employment in urban areas of Bolivia," Labour Economics, Elsevier, vol. 2(3), pages 275-297, September.
    4. Carmen Pagés-Serra & James J. Heckman, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," Research Department Publications 4227, Inter-American Development Bank, Research Department.
    5. Chandra, Vandana & Khan, M Ali, 1993. "Foreign Investment in the Presence of an Informal Sector," Economica, London School of Economics and Political Science, vol. 60(237), pages 79-103, February.
    6. Magnac, Th, 1991. "Segmented or Competitive Labor Markets," Econometrica, Econometric Society, vol. 59(1), pages 165-187, January.
    7. James J. Heckman & Carmen Pagés, 2004. "Introduction to "Law and Employment: Lessons from Latin American and the Caribbean"," NBER Chapters,in: Law and Employment: Lessons from Latin America and the Caribbean, pages 1-108 National Bureau of Economic Research, Inc.
    8. Fields, Gary S., 1975. "Rural-urban migration, urban unemployment and underemployment, and job-search activity in LDCs," Journal of Development Economics, Elsevier, vol. 2(2), pages 165-187, June.
    9. Fernando Botelho & Vladimir Ponczek, 2011. "Segmentation in the Brazilian Labor Market," Economic Development and Cultural Change, University of Chicago Press, vol. 59(2), pages 437-463.
    10. Carmen Pagés-Serra, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," ECONOMIA JOURNAL, THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION - LACEA, vol. 0(Fall 2000), pages 109-154, August.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Labor market; Informality; Wage Di¤erentials.;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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