Macroeconomic Adjustment with Segmented Labor Markets

50 Pages Posted: 15 Feb 2006

See all articles by Pierre-Richard Agenor

Pierre-Richard Agenor

University of Manchester - School of Social Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: May 1994

Abstract

This paper analyzes the macroeconomic effects of fiscal and labor market policies in developing countries. The basic framework considers a small open economy with a large informal production sector and a heterogeneous work force. The labor market is segmented as a result of efficiency considerations and minimum wage laws. The basic model is then extended to account for unemployment benefits, income taxation, and imperfect labor mobility across sectors. The analysis indicates, among other results, that a reduction in unemployement benefits has a positive effect on output of tradable goods by lowering both the level of efficiency wages and the relative rent captured by skilled workers.

JEL Classification: E24, F41, J42

Suggested Citation

Agenor, Pierre-Richard, Macroeconomic Adjustment with Segmented Labor Markets (May 1994). IMF Working Paper, Vol. , pp. 1-50, 1994. Available at SSRN: https://ssrn.com/abstract=883527

Pierre-Richard Agenor (Contact Author)

University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

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