Labour Market Policies and the Informal Sector: A Segmented Labour Markets Analysis

Dürdane Şirin Saracoğlu ()
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Dürdane Şirin Saracoğlu: Department of Economics, METU

No 1705, ERC Working Papers from ERC - Economic Research Center, Middle East Technical University

Abstract: In this paper we develop a dynamic model of a multi-sector economy with an informal sector and segmented labour markets first to demonstrate how informal production and employment decline in transition towards the steady state, and second to analyse the impact of various labour market policies at the steady state. Our results primarily indicate that informal employment share increases with minimum wage, and decreases with reductions in the payroll taxes, moreover, reducing the tax imposed on employer is more effective in reducing the informal employment share, while reducing the tax imposed on employee is more effective in increasing consumer felicity.

Keywords: Segmented labour markets; informal employment; payroll taxes; minimum wage; dynamic modelling (search for similar items in EconPapers)
JEL-codes: C61 J42 O17 O41 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2017-05, Revised 2017-05
New Economics Papers: this item is included in nep-dcm, nep-iue and nep-lma
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http://erc.metu.edu.tr/en/system/files/menu/series17/1705.pdf First version, 2017 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:met:wpaper:1705

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