The impacts of privatization on employment, wages, and welfare in the presence of an informal sector

Jiancai Pi, Xinyi Liu () and Jun Yin ()
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Xinyi Liu: Nanjing University
Jun Yin: Nanjing University

The Annals of Regional Science, 2025, vol. 74, issue 1, No 35, 28 pages

Abstract: Abstract By constructing three-sector general equilibrium models, this paper investigates how privatization influences regional wage rates, inter-regional employment, and social welfare in the presence of an informal sector. In the short-term basic model with sector-specific capital, an increase in the degree of privatization will decrease formal-sector employment, increase agricultural-sector employment while decreasing its wage rate, conditionally decrease informal-sector employment while increasing its wage rate, and reduce social welfare. When partially relaxing capital mobility constraints, we find the results remain largely consistent: privatization continues to decrease formal-sector employment, increase agricultural-sector employment while conditionally lowering its wage rate, reduce informal-sector employment while raising its wage level, and reduce social welfare. However, in the long-term model where capital moves freely across all sectors, most outcomes differ from those in the basic model, and this paper identifies the conditions under which the conclusions hold.

JEL-codes: E26 O12 O15 R13 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s00168-025-01363-9

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