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Wages and informality in developing countries

  • Costas Meghir

    (Institute for Fiscal Studies and Yale University)

  • Renata Narita
  • Jean-Marc Robin

    ()

    (Institute for Fiscal Studies and Sciences Po)

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.

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Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W12/16.

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Date of creation: Sep 2012
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Handle: RePEc:ifs:ifsewp:12/16
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  1. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
  2. Berg, G.J. & Ridder, G., 1993. "An empirical equilibrium search model of the labour market," Serie Research Memoranda 0039, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  3. James Albrecht & Lucas Navarro & Susan Vroman, 2009. "The Effects of Labour Market Policies in an Economy with an Informal Sector," Economic Journal, Royal Economic Society, vol. 119(539), pages 1105-1129, 07.
  4. Pratap, Sangeeta & Quintin, Erwan, 2006. "Are labor markets segmented in developing countries? A semiparametric approach," European Economic Review, Elsevier, vol. 50(7), pages 1817-1841, October.
  5. Christian Bontemps & Jean-Marc Robin & Gérard J. Van Den Berg, 2000. "Equilibrium Search with Continuous Productivity Dispersion: Theory and Nonparametric Estimation," Working Papers 249986, Institut National de la Recherche Agronomique, France.
  6. Guillermo E. Perry & William F. Maloney & Omar S. Arias & Pablo Fajnzylber & Andrew D. Mason & Jaime Saavedra-Chanduvi, 2007. "Informality : Exit and Exclusion," World Bank Publications, The World Bank, number 6730.
  7. Mariano Bosch, 2006. "Job Creation and Job Destruction in the Presence of Informal Labour Markets," CEP Discussion Papers dp0761, Centre for Economic Performance, LSE.
  8. repec:dgr:uvatin:19980089 is not listed on IDEAS
  9. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  10. Berg, Gerard J. van den, 1999. "Multiple equilibria and minimum wages in labor markets with informational frictions and heterogeneous production technologies," Serie Research Memoranda 0044, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  11. Fugazza, Marco & Jacques, Jean-Francois, 2004. "Labor market institutions, taxation and the underground economy," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 395-418, January.
  12. repec:dgr:uvatin:1998089 is not listed on IDEAS
  13. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  14. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 699-726, August.
  15. Bontemps, Christian & Robin, Jean-Marc & Van den Berg, Gerard J, 1999. "An Empirical Equilibrium Job Search Model with Search on the Job and Heterogeneous Workers and Firms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 1039-74, November.
  16. Jolivet, Gregory & Postel-Vinay, Fabien & Robin, Jean-Marc, 2006. "The empirical content of the job search model: Labor mobility and wage distributions in Europe and the US," European Economic Review, Elsevier, vol. 50(4), pages 877-907, May.
  17. El Badaoui, Eliane & Strobl, Eric & Walsh, Frank, 2007. "The Formal Sector Wage Premium and Firm Size," IZA Discussion Papers 3145, Institute for the Study of Labor (IZA).
  18. repec:dgr:uvatin:2098089 is not listed on IDEAS
  19. Ulyssea, Gabriel, 2010. "Regulation of entry, labor market institutions and the informal sector," Journal of Development Economics, Elsevier, vol. 91(1), pages 87-99, January.
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