Informal Wage and Formal Sector Productivity
Posted: 19 Aug 2008
Date Written: August 17, 2008
The paper attempts to find out the relationship between informal wage and innovative efforts of firms in the formal sector in countries such as India, where informal sector captures lion's share of total workforce. A firm employs both formal and informal workers to produce a good. In equilibrium both in-house production and outsourcing are opted for. We show that the availability of low wage informal workers makes the formal segment less efficient by reducing its incentive for R and D. Thus countries with vast segment of lowly paid informal workers will also exhibit lowly productive formal sector workers.
Note: Downloadable document is in Portuguese.
Keywords: Informal Wage, Poverty, Labour Productivity, R&D Investment, Outsourcing
JEL Classification: D23, E26, J24, J42, L24
Suggested Citation: Suggested Citation