Firm Heterogeneity, Informal Wage and Good Governance

Saibal Kar () and Sugata Marjit

No 5978, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We provide an analysis of enforcement policies applicable to formal sector in dual labor markets. We use a framework with heterogeneous firms, endogenous determination of informal wage and politically dictated enforcement strategies. Firms which operate both in the formal and informal sectors do very little to increase employment when faced with the opportunity of hiring workers in the informal labor market. Thus enforcement of labor laws and other regulations should not have aggregate employment effects, particularly when workers are productively homogeneous. For firms operating exclusively in the informal sector, the outcome is different. Such features determine the stringency of enforcement in a market characterized by firms with varying levels of productivity. For example, in case of firms with relatively high levels of productivity, enforcement has to be stricter than in the case with relatively low productivity firms. Taxing the more productive seems to be the optimal strategy.

Keywords: wage; informal labor; heterogeneous firms; labor regulations; enforcement (search for similar items in EconPapers)
JEL-codes: J21 J31 J50 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2011-09
New Economics Papers: this item is included in nep-iue, nep-lab and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published - published in: Review of Development Economics, 2012, 16 (4), 527-539

Downloads: (external link)
https://docs.iza.org/dp5978.pdf (application/pdf)

Related works:
Journal Article: Firm Heterogeneity, Informal Wage and Good Governance (2012)
Working Paper: Firm Heterogeneity, Informal Wage and Good Governance (2011)
Working Paper: Firm Heterogeneity, Informal Wage and Good Governance (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp5978

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().