Wages and informality in developing countries

Costas Meghir · Renata Del Tedesco Narita · Jean‐Marc Robin

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Labor market dynamics and wage inequality Taxation and Compliance Studies Education and Labor Relations

Abstract

It is often argued that informal labor markets in developing countries promote growth by reducing the impact of regulation. On the other hand informality may reduce the amount of social protection offered to workers. We extend the wage-posting framework of Burdett and Mortensen (1998) to allow heterogeneous firms to decide whether to locate in the formal or the informal sector, as well as set wages. Workers engage in both off the job and on the job search. We estimate the model using Brazilian micro data and evaluate the labor market and welfare effects of policies towards informality.

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References

1994Job Creation and Job Destruction in the Theory of Unemployment 1951SOME THOUGHTS ON THE DISTRIBUTION OF EARNINGS 1 2005The Cyclical Behavior of Equilibrium Unemployment and Vacancies n.d.Looking into the Black Box: A Survey of the Matching Function 1998Wage Differentials, Employer Size, and Unemployment 1990Job Security Provisions and Employment 2007Informality : Exit and Exclusion 1999Does Informality Imply Segmentation in Urban Labor Markets? Evidence from Sectoral Transitions in Mexico

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2016Informality and Long‐Run Growth

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