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Labor Market Policies, Informal Labor Markets, and Wage Dispersion

Claudia Trentini

A chapter in Inequality after the 20th Century: Papers from the Sixth ECINEQ Meeting, 2016, vol. 24, pp 83-120 from Emerald Publishing Ltd

Abstract: Abstract In the last decade, Argentina has experienced a considerable decline in informal employment and wage dispersion. This paper extends a search model with exogenous human capital accumulation to include the informal sector. The model is parametrized to match Argentinian data between 1996 and 1998 – before the onset of the declining trend – and it is used to investigate the contribution of labor market measures to the falling informality, unemployment, and wage dispersion. The findings indicate that institutional factors did not contribute to the positive labor market trends observed; on the contrary, results show that higher severance pay and minimum wages increase informality and that the introduction of unemployment assistance contributed to the spread of informal contracts across the work force. Further, I find that compliance with minimum wage regulation strongly affects the final impact of these policies. While non perfect compliance might reduce unemployment, it reinforces the incentives of workers to move to the informal sector.

Keywords: Informal sector; inequality; unemployment; search models; human capital accumulation; J64; J31; O17; I3 (search for similar items in EconPapers)
Date: 2016
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