Wages and Informality in Developing Countries | Zendy

Costas Meghir | Zendy; Renata Narita | Zendy; JeanMarc Robin | Zendy

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Wages and Informality in Developing Countries

Author(s) -

Costas Meghir,

Renata Narita,

JeanMarc Robin

Publication year - 2015

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.20121110

Subject(s) - productivity , welfare , unemployment , labour economics , economics , enforcement , informal sector , efficiency wage , competition (biology) , wage , general equilibrium theory , survey data collection , developing country , microeconomics , macroeconomics , market economy , economic growth , ecology , biology , political science , law , statistics , mathematics

We develop an equilibrium wage-posting model with heterogeneous firms that decide to locate in the formal or the informal sector and workers who search randomly on and off the job. We estimate the model on Brazilian labor force survey data. In equilibrium, firms of equal productivity locate in different sectors, a fact observed in the data. Wages are characterized by compensating differentials. We show that tightening enforcement does not increase unemployment and increases wages, total output, and welfare by enabling better allocation of workers to higher productivity jobs and improving competition in the formal labor market

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