Firm Heterogeneity, Informal Wage and Good Governance

Sugata Marjit

MPRA Paper from University Library of Munich, Germany

Abstract: We provide an analysis of enforcement policies in a framework with heterogeneous firms, endogenous determination of informal wage and politically dictated strategies. We argue that firms which operate both in the formal and informal sectors do very little to increase TOTAL employment when faced with the opportunity of hiring workers in the informal labor market. Thus enforcing labor laws and other regulations in this case should not have aggregate employment effects. For firms operating exclusively in the informal sector, the outcome is different. Such features determine the stringency of enforcement in the context of markets characterized by firms with varying levels of productivity. For example if the formal sector has firms with relatively high levels of productivity enforcement has to be stricter than in the case with relatively large number of low productive firms. This seems to be consistent with observed behavior of the authorities in the developed and the developing world. We also talk about the implications of labor market reforms on informal wage.

Keywords: Heterogeneous firms; informal sector; labor market; governance; reform. (search for similar items in EconPapers)
JEL-codes: D23 K4 O17 (search for similar items in EconPapers)
Date: 2009-11
New Economics Papers: this item is included in nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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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 (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:19168

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