Modeling the Effects of Labor Market Reforms in a Developing EconomyJames Albrecht (), Lucas Navarro and Susan Vroman () No 744, 2006 Meeting Papers from Society for Economic Dynamics Abstract: In developing economies, substantial economic activity takes place in the informal labor market, beyond the reach of government policy. Labor market policies, which by definition apply only to the formal-sector labor market, then have important spillover effects. The relative sizes of the informal and formal sector labor markets adjust, the skill composition of the workforce in the two sectors changes, etc. In this paper, we build an equilibrium search and matching model to analyze the effects of labor market policies in a developing economy. Our model extends Mortensen and Pissarides (1994) by allowing for ex ante worker heterogeneity with respect to formal-sector productivity. We analyze the effects of labor market policy on informal- and formal-sector output, on the division of the workforce into unemployment, informal-sector employment and formal-sector employment, and on wages. Finally, our model allows us to examine the distributional implications of labor market policy; specifically, we analyze how labor market policy affects the distributions of wages and productivities across formal-sector matches. Keywords: job search; informal sector; severance tax; development (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:red:sed006:744 Access Statistics for this paper More papers in 2006 Meeting Papers from Society for Economic Dynamics |
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