IDEAS home Printed from
   My bibliography  Save this paper

Currency devaluation with dual labor market : Which perspectives for the Euro Zone ?


  • Amélie Barbier-Gauchard
  • Francesco De Palma
  • Giuseppe Diana


In this paper, we assume a world of two countries in a fixed exchange rate system. The main difference between the two countries lies in the features of their labor markets. In the home country, we assume the existence of a dual labor market, with formal and informal sectors. In the foreign country, the labor market is homogeneous and characterized by a nominal wage rigidity. In this context, the situation of labor market in each country is not optimal through a misallocation of workers between sectors in domestic economy, and unemployment in foreign economy. Our article shows that a devaluation of domestic currency implies a fall in production in each country, an increase in unemployment in foreign economy and a worse reallocation of workers by a growth of informal sector in domestic economy.

Suggested Citation

  • Amélie Barbier-Gauchard & Francesco De Palma & Giuseppe Diana, 2012. "Currency devaluation with dual labor market : Which perspectives for the Euro Zone ?," Working Papers of BETA 2012-04, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  • Handle: RePEc:ulp:sbbeta:2012-04

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Hazans, Mihails, 2011. "Informal Workers across Europe: Evidence from 30 Countries," IZA Discussion Papers 5871, Institute for the Study of Labor (IZA).
    2. Schneider, Friedrich, 2005. "Shadow economies around the world: what do we really know?," European Journal of Political Economy, Elsevier, vol. 21(3), pages 598-642, September.
    3. Claudia Curi & Cinzia Daraio & Patrick Llerena, 2012. "University technology transfer: how (in)efficient are French universities?," Cambridge Journal of Economics, Oxford University Press, vol. 36(3), pages 629-654.
    4. Dimitri G. Demekas, 1990. "Labor Market Segmentation in a Two-Sector Model of an Open Economy," IMF Staff Papers, Palgrave Macmillan, vol. 37(4), pages 849-864, December.
    5. Olivier Cardi & Romain Restout, 2014. "Unanticipated vs. Anticipated Tax Reforms in a Two-Sector Open Economy," Open Economies Review, Springer, vol. 25(2), pages 373-406, April.
    6. David Cook & Hiromi Nosaka, 2006. "Dual labor markets and business cycles," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
    7. Mattesini, Fabrizio & Rossi, Lorenza, 2009. "Optimal monetary policy in economies with dual labor markets," Journal of Economic Dynamics and Control, Elsevier, vol. 33(7), pages 1469-1489, July.
    8. Linzert, Tobias & Christoffel, Kai & Kuester, Keith, 2006. "Identifying the role of labor markets for monetary policy in an estimated DSGE model," Working Paper Series 635, European Central Bank.
    9. Konstantinos POULIAKAS & Ioannis THEODOSSIOU, 2010. "Differences in the job satisfaction of high-paid and low-paid workers across Europe," International Labour Review, International Labour Organization, vol. 149(1), pages 1-29, March.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Amélie Barbier-Gauchard & Francesco de Palma & Giuseppe Diana, 2013. "Why could Northern labor market flexibility save the eurozone?," Working Papers of LaRGE Research Center 2013-08, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.

    More about this item


    efficiency wage; dualism; exchange rate; devaluation.;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ulp:sbbeta:2012-04. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.