Trade Reform and Informal Wages

8 Pages Posted: 2 May 2007

See all articles by Sugata Marjit

Sugata Marjit

Centre for Studies in Social Sciences, Calcutta; City University of Hong Kong (CityUHK) - Department of Economics & Finance

Saibal Kar

Centre for Studies in Social Sciences, Calcutta; Institute of Labor Economics (IZA)

Hamid Beladi

University of Texas at San Antonio - College of Business - Department of Economics

Abstract

When trade reform contracts protected formal sectors in developing countries and the formal workers move to the informal sector for employment, does that reduce informal wages? Using a 2 x 2 Heckscher-Ohlin-Samuelson (HOS) structure with formal-informal production organization for the same commodity, we show that a tariff cut in the import-competing sector increases both informal wage and employment under very reasonable assumptions. An increase in the price of the export commodity will also increase informal wages, although aggregate informal employment unambiguously falls even if the informal export sector is labor intensive. Furthermore, the formal-informal segmentation of each sector opens up an interesting, hitherto unexplored, possibility that the informal export sector may contract despite a price increase in this sector. Change in the overall size of the export sector is also ambiguous and conditional on the relative strengths of changes in these two segments.

Suggested Citation

Marjit, Sugata and Kar, Saibal and Beladi, Hamid, Trade Reform and Informal Wages. Review of Development Economics, Vol. 11, No. 2, pp. 313-320, May 2007. Available at SSRN: https://ssrn.com/abstract=982724 or http://dx.doi.org/10.1111/j.1467-9361.2007.00409.x

Sugata Marjit (Contact Author)

Centre for Studies in Social Sciences, Calcutta ( email )

R 1, B.P. Township
Kolkata, West Bengal, India
Kolkata, West Bengal 700094
India

City University of Hong Kong (CityUHK) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Saibal Kar

Centre for Studies in Social Sciences, Calcutta ( email )

R-1, Baishnabghata Patuli Township
Calcutta, 700 094
India
91-33-2462 7252 (Phone)
91-33-2462 6183 (Fax)

HOME PAGE: http://www.cssscal.org

Institute of Labor Economics (IZA) ( email )

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

Hamid Beladi

University of Texas at San Antonio - College of Business - Department of Economics ( email )

One UTSA Circle
P.O. Box 5636
San Antonio, TX 78249
United States
210-458-7038 (Phone)
210-458-7040 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
15
Abstract Views
439
PlumX Metrics