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Policies against informality in segmented labour markets: a general equilibrium analysis applied to Uruguay

Author

Listed:
  • Carmen Estrades

    () (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)

  • María Inés Terra

    () (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)

Abstract

In this paper we analyze the impact of some policies against informality on the labor market, poverty and income distribution in Uruguay, using a general equilibrium model that considers a dual labor market segmented by skill, and microsimulations. We simulate two sets of policies: payroll tax cuts and increased enforcement in the informal sector. Both sets of policies are effective in reducing informality. Payroll tax cuts on unskilled labor increase informality among medium-skilled workers, but in spite of that they are successful in reducing poverty and improving income distribution. Enforcement policies have a negative impact on wages, especially for unskilled workers. The net effect on poverty is two-sided: on the one hand this policy promotes an increase in poverty as a consequence of wages falling, but on the other hand poverty falls because the formal demand for labor increases.

Suggested Citation

  • Carmen Estrades & María Inés Terra, 2007. "Policies against informality in segmented labour markets: a general equilibrium analysis applied to Uruguay," Documentos de Trabajo (working papers) 0408, Department of Economics - dECON.
  • Handle: RePEc:ude:wpaper:0408
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    References listed on IDEAS

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    Cited by:

    1. Forteza, Alvaro & Ourens, Guzman, 2009. "How much do Latin American pension programs promise to pay back?," Social Protection and Labor Policy and Technical Notes 52447, The World Bank.

    More about this item

    Keywords

    informality; labor market; general equilibrium; policies; poverty; microsimulations;

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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