Dual Labor Markets and Business Cycles

Cook, David E.; Nosaka, Hiromi

doi:10.2139/ssrn.1004810

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Dual Labor Markets and Business Cycles

Federal Reserve Bank of San Francisco Working Paper No. 2006-36

27 Pages Posted: 6 Aug 2007

See all articles by David E. Cook

David E. Cook

Hong Kong University of Science & Technology (HKUST) - Department of Economics; Hong Kong University of Science & Technology (HKUST) - Department of Economics

Hiromi Nosaka

affiliation not provided to SSRN

Date Written: September 2005

Abstract

In this paper, we model a dynamic general equilibrium model of a small open developing economy. We model labor markets as including both formal and informal urban employment as well as rural employment. We find that modelling dual labor markets helps explain why output in developing economies may fall even as labor inputs remain constant during financial crises. An external financial shock may lead to a reallocation of labor from productive formal sectors of the economy to less productive informal sectors.

Keywords: bank balance sheet channel, foreign currency debt, sticky prices, exchange rate depreciation

JEL Classification: F3, F4

Suggested Citation: Suggested Citation

Cook, David E. and Nosaka, Hiromi, Dual Labor Markets and Business Cycles (September 2005). Federal Reserve Bank of San Francisco Working Paper No. 2006-36, Available at SSRN: https://ssrn.com/abstract=1004810 or http://dx.doi.org/10.2139/ssrn.1004810