IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

The Implications of Capital-Skill Complementarity in Economies with Large Informal Sectors

  • Pedro S. Amaral

    (Southern Methodist University)

  • Erwan Quintin

    (Federal Reserve Bank of Dallas)

In most developing nations, formal workers tend to be more experienced and educated than informal workers, a fact often interpreted as evidence that low-skill workers face barriers to entry into the formal sector. Yet, there exists little direct evidence that labor markets are segmented in those nations. This paper describes a model where significant differences arise between workers across sectors even though labor markets are perfectly competitive. In equilibrium, the informal sector emphasizes low-skill work because informal managers have access to less outside financing, and choose to substitute low-skill labor for physical capital. We argue that subsidiary implications of the model for the organization of production are borne out by the existing evidence on informal economic activities in developing countries.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by EconWPA in its series Macroeconomics with number 0309017.

in new window

Length: 30 pages
Date of creation: 23 Sep 2003
Date of revision:
Handle: RePEc:wpa:wuwpma:0309017
Note: Type of Document - ; pages: 30
Contact details of provider: Web page:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Kehoe, Timothy J & Levine, David K, 1993. "Debt-Constrained Asset Markets," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 865-88, October.
  2. Simeon Djankov & Rafael Porta & Florencio de & Andrei Shleifer, 2002. "Courts: The Lex Mundi Project," Yale School of Management Working Papers ysm277, Yale School of Management, revised 01 Nov 2003.
  3. Sangeeta Pratap & Erwan Quintin, 2001. "Are labor markets segmented in Argentina? a semiparametric approach," Center for Latin America Working Papers 0701, Federal Reserve Bank of Dallas.
  4. Rauch, James E., 1991. "Modelling the informal sector formally," Journal of Development Economics, Elsevier, vol. 35(1), pages 33-47, January.
  5. Sarte, Pierre-Daniel G., 2000. "Informality and rent-seeking bureaucracies in a model of long-run growth," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 173-197, August.
  6. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April.
  7. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1998. "Regulatory Discretion and the Unofficial Economy," American Economic Review, American Economic Association, vol. 88(2), pages 387-92, May.
  8. Fortin, Bernard & Marceau, Nicolas & Savard, Luc, 1997. "Taxation, wage controls and the informal sector," Journal of Public Economics, Elsevier, vol. 66(2), pages 293-312, November.
  9. Maloney, William F, 1999. "Does Informality Imply Segmentation in Urban Labor Markets? Evidence from Sectoral Transitions in Mexico," World Bank Economic Review, World Bank Group, vol. 13(2), pages 275-302, May.
  10. Pradhan, M.P. & van Soest, A.H.O., 1993. "Formal and informal sector employment in urban areas of Bolivia," Discussion Paper 1993-11, Tilburg University, Center for Economic Research.
  11. Loayza, Norman A., 1997. "The economics of the informal sector : a simple model and some empirical evidence from Latin America," Policy Research Working Paper Series 1727, The World Bank.
  12. Tannen, Michael B, 1991. "Labor Markets in Northeast Brazil: Does the Dual Market Model Apply?," Economic Development and Cultural Change, University of Chicago Press, vol. 39(3), pages 567-83, April.
  13. Magnac, Th, 1991. "Segmented or Competitive Labor Markets," Econometrica, Econometric Society, vol. 59(1), pages 165-87, January.
  14. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpma:0309017. 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: (EconWPA)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.