Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/55137
Authors: 
Kar, Saibal
Marjit, Sugata
Year of Publication: 
2011
Series/Report no.: 
Discussion paper series // Forschungsinstitut zur Zukunft der Arbeit 5978
Abstract: 
We provide an analysis of enforcement policies applicable to formal sector in dual labor markets. We use a framework with heterogeneous firms, endogenous determination of informal wage and politically dictated enforcement strategies. Firms which operate both in the formal and informal sectors do very little to increase employment when faced with the opportunity of hiring workers in the informal labor market. Thus enforcement of labor laws and other regulations should not have aggregate employment effects, particularly when workers are productively homogeneous. For firms operating exclusively in the informal sector, the outcome is different. Such features determine the stringency of enforcement in a market characterized by firms with varying levels of productivity. For example, in case of firms with relatively high levels of productivity, enforcement has to be stricter than in the case with relatively low productivity firms. Taxing the more productive seems to be the optimal strategy.
Subjects: 
heterogeneous firms
informal labor
wage
labor regulations
enforcement
JEL: 
J21
J31
J50
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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