Policies against informality in segmented labour markets: a general equilibrium analysis applied to Uruguay

Carmen Estrades () and María Inés Terra

No 408, Documentos de Trabajo (working papers) from Department of Economics - dECON

Abstract: In this paper we analyze the impact of some policies against informality on the labor market, poverty and income distribution in Uruguay, using a general equilibrium model that considers a dual labor market segmented by skill, and microsimulations. We simulate two sets of policies: payroll tax cuts and increased enforcement in the informal sector. Both sets of policies are effective in reducing informality. Payroll tax cuts on unskilled labor increase informality among medium-skilled workers, but in spite of that they are successful in reducing poverty and improving income distribution. Enforcement policies have a negative impact on wages, especially for unskilled workers. The net effect on poverty is two-sided: on the one hand this policy promotes an increase in poverty as a consequence of wages falling, but on the other hand poverty falls because the formal demand for labor increases.

Keywords: informality; labor market; general equilibrium; policies; poverty; microsimulations (search for similar items in EconPapers)
JEL-codes: D58 I32 J08 J42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp and nep-lam
Date: 2007-12

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Persistent link: http://EconPapers.repec.org/RePEc:ude:wpaper:0408

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