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http://hdl.handle.net/10419/33682
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| Title: | | The effects of labor market policies in an economy with an informal sector  |
| Authors: | | Albrecht, James Navarro, Lucas Vroman, Susan |
| Issue Date: | | 2006 |
| Series/Report no.: | | IZA Discussion Papers 2141 |
| Abstract: | | 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. |
| Subjects: | | search matching informal sector |
| JEL: | | E26 J64 J65 O17 |
| Document Type: | | Working Paper |
| Appears in Collections: | | IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)
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