Labor Markets and Productivity in Developing Countries

Mathan Satchi and Jonathan Temple

Review of Economic Dynamics, 2009, vol. 12, issue 1, 183-204

Abstract: In middle-income countries, the informal sector often accounts for a substantial fraction of the urban labor force. We develop a general equilibrium model with matching frictions in the urban labor market, the possibility of self-employment in the informal sector, and scope for rural-urban migration. We investigate the effects of labor market institutions, different types of growth, and company taxes on labor market outcomes and aggregate productivity. We quantify these effects by calibrating the model to data for Mexico, and show that matching frictions can lead to a large informal sector when formal sector workers have substantial bargaining power. (Copyright: Elsevier)

Keywords: Informal sector; Urban unemployment; Dual economy; Matching frictions (search for similar items in EconPapers)
JEL-codes: J40 O10 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (90)

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Working Paper: Online Appendix for "Labor Markets and Productivity in Developing Countries" (2008)
Working Paper: Labour Markets and Productivity in Developing Countries (2008)
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DOI: 10.1016/j.red.2008.09.001

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