The effects of labor market policies in an economy with an informal sector

Arbeitspapier

In many economies, there is substantial economic activity in the informal sector, beyond the reach of government policy. Labor market policies, which by definition apply only to the formal sector, can have important spillover effects on the informal sector. The relative sizes of the informal and formal sectors adjust, the skill composition of the workforce in the two sectors changes, etc. In this paper, we build an equilibrium search and matching model to analyze the effects of labor market policies in an economy with an informal sector. Our model extends Mortensen and Pissarides (1994) by allowing for ex ante worker heterogeneity with respect to formal-sector productivity. We analyze the effects of labor market policy on informal- and formal-sector output, on the division of the workforce into unemployment, informal-sector employment and formal-sector employment, and on wages. Finally, our model allows us to examine the distributional implications of labor market policy; specifically, we analyze how labor market policy affects the distributions of wages and productivities across formal-sector matches.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: IZA Discussion Papers ; No. 2141

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Informal Economy; Underground Economy ; Unemployment: Models, Duration, Incidence, and Job Search ; Unemployment Insurance; Severance Pay; Plant Closings ; Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
• Thema: search ; matching ; informal sector

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Albrecht, James ; Navarro, Lucas ; Vroman, Susan
• Ereignis: Veröffentlichung
• (wer): Institute for the Study of Labor (IZA)
• (wo): Bonn
• (wann): 2006

Weitere Informationen

• Handle: http://hdl.handle.net/10419/33682
• Letzte Aktualisierung: 10.03.2025, 11:43 MEZ