Wages and Informality in Developing Countries

67 Pages Posted: 27 Sep 2012

See all articles by Costas Meghir

Costas Meghir

Yale University; Yale University - Cowles Foundation; Institute for Fiscal Studies (IFS); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Renata Narita

University of Sao Paulo

Jean-Marc Robin

École Normale Supérieure (ENS) - Laboratoire d'Economie Theorique et Appliquee (LEA); National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST); French National Institute for Agricultural Research (INRA); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

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Date Written: September 1, 2012

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.

Keywords: consumer/household economics, labor and human capital, production economics, research methods/statistical methods

JEL Classification: J24, J3, J42, J6, O17

Suggested Citation

Meghir, Costas and Narita, Renata and Robin, Jean-Marc, Wages and Informality in Developing Countries (September 1, 2012). Yale University Economic Growth Center Discussion Paper No. 1018, Yale Economics Department Working Paper No. 109, Available at SSRN: https://ssrn.com/abstract=2150373

Costas Meghir (Contact Author)

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Renata Narita

University of Sao Paulo ( email )

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Brazil

Jean-Marc Robin

École Normale Supérieure (ENS) - Laboratoire d'Economie Theorique et Appliquee (LEA) ( email )

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Centre for Economic Policy Research (CEPR)

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IZA Institute of Labor Economics

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Bonn, D-53072
Germany

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