Contractual Dualism, Market Power and Informality

40 Pages Posted: 19 Jan 2016

See all articles by Arnab Basu

Arnab Basu

Cornell University

Nancy H. Chau

Cornell University - School of Applied Economics and Management; IZA Institute of Labor Economics

Ravi Kanbur

Cornell University; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Date Written: December 2015

Abstract

We develop a search‐theoretic model of contractual dualism in formal and informal labour markets. The model (i) provides the micro‐underpinnings for endogenous determination of employer market power in the formal and informal sectors, (ii) offers a unified and coherent set‐up whereby a host of salient features of developing country labour markets can be explained together and (iii) places for the first time the Stiglerian prescription of the optimal (unemployment minimising) minimum wage in the broader context of labour markets where formal job creation is costly, where employer market power is endogenous and where formal employment, informal employment and unemployment coexist.

Suggested Citation

Basu, Arnab and Chau, Nancy H. and Kanbur, Ravi, Contractual Dualism, Market Power and Informality (December 2015). The Economic Journal, Vol. 125, Issue 589, pp. 1534-1573, 2015. Available at SSRN: https://ssrn.com/abstract=2716800 or http://dx.doi.org/10.1111/ecoj.12222

Arnab Basu

Cornell University ( email )

Ithaca, NY 14853
United States

Nancy H. Chau (Contact Author)

Cornell University - School of Applied Economics and Management ( email )

Ithaca, NY 14853
United States
607-255-4463 (Phone)
607-255-9984 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Ravi Kanbur

Cornell University ( email )

301-J Warren Hall
Ithaca, NY 14853
United States
607-255-7966 (Phone)
607-255-9984 (Fax)

HOME PAGE: http://www.kanbur.dyson.cornell.edu

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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