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Informal Wage, Informal Price and Extortion under Migration and Tariff Reform


  • Mandal, Biswajit
  • Chaudhuri, Saswati


In this paper we propose a theoretical model where formal and informal sectors co-exist in tandem. Trade union segregates some labor from being formal. Capital is not allowed to freely move between formal and informal sectors. Using this sort of framework it has been shown that immigration of unskilled workers reduces the return to informal labor and makes the informal good relatively cheaper. A tariff slash also impinges on similar kind of results. In both the cases informal capitalists gain. Moreover, what is more striking is that both migration and tariff reform are equally bad for the economy as a whole since these policies enhance the ‘unproductive’ element or labor in the society which is really costly as these laborers could have been used to produce some more consumable commodities.

Suggested Citation

  • Mandal, Biswajit & Chaudhuri, Saswati, 2010. "Informal Wage, Informal Price and Extortion under Migration and Tariff Reform," MPRA Paper 28704, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:28704

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    References listed on IDEAS

    1. Bhagwati, Jagdish N, 1982. "Directly Unproductive, Profit-seeking (DUP) Activities," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 988-1002, October.
    2. Kar, Saibal & Marjit, Sugata, 2009. "Urban informal sector and poverty," International Review of Economics & Finance, Elsevier, vol. 18(4), pages 631-642, October.
    3. Marjit, Sugata, 2003. "Economic reform and informal wage--a general equilibrium analysis," Journal of Development Economics, Elsevier, vol. 72(1), pages 371-378, October.
    4. Marjit, Sugata & Kar, Saibal & Chaudhuri, Sarbajit, 2011. "Recession in the skilled sector and implications for informal wage," Research in Economics, Elsevier, vol. 65(3), pages 158-163, September.
    5. Hamid Beladi & Sugata Marjit, 1992. "Foreign Capital and Protectionism," Canadian Journal of Economics, Canadian Economics Association, vol. 25(1), pages 233-238, February.
    6. Beladi, Hamid & Chao, Chi-Chur, 1993. "Non-traded goods, urban unemployment and welfare in LDCs," European Journal of Political Economy, Elsevier, vol. 9(2), pages 281-292, May.
    7. Marjit, Sugata & Mandal, Biswajit, 2010. "Extortion and Informal Sector in a Small Open Economy," MPRA Paper 25044, University Library of Munich, Germany.
    8. Sarbajit Chaudhuri, 2003. "How and how far to liberalize a developing economy with informal sector and factor market distortions," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 12(4), pages 403-428.
    9. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557-557.
    10. Amaral, Pedro S. & Quintin, Erwan, 2006. "A competitive model of the informal sector," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1541-1553, October.
    11. Chaudhuri, Sarbajit & Mukhopadhyay, Ujjaini, 2009. "Revisiting the Informal Sector: A General Equilibrium Approach," MPRA Paper 52135, University Library of Munich, Germany.
    12. Skaperdas, Stergios & Syropoulos, Constantinos, 1997. "The Distribution of Income in the Presence of Appropriative Activities," Economica, London School of Economics and Political Science, vol. 64(253), pages 101-117, February.
    13. Ronald Jones & Sugata Marjit, 2009. "Competitive trade models and real world features," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 41(1), pages 163-174, October.
    14. Klarita Gërxhani, 2004. "The Informal Sector in Developed and Less Developed Countries: A Literature Survey," Public Choice, Springer, vol. 120(3_4), pages 267-300, September.
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    More about this item


    International Trade; Corruption/Extortion; Informal sector; Migration; General Equilibrium.;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population


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