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Wages and Informality in Developing Countries

  • Costas Meghir
  • Renata Narita
  • Jean-Marc Robin

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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18347.

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Date of creation: Aug 2012
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Publication status: published as Costas Meghir & Renata Narita & Jean-Marc Robin, 2015. "Wages and Informality in Developing Countries," American Economic Review, American Economic Association, vol. 105(4), pages 1509-46, April.
Handle: RePEc:nbr:nberwo:18347
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