Macroeconomic Adjustment with Segmented Labor Markets

Author/Editor:

Joshua Aizenman ; Pierre-Richard Agénor

Publication Date:

May 1, 1994

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper analyzes the macroeconomic effects of fiscal and labor market policies in developing countries. The basic framework considers a small open economy with a large informal production sector and a heterogeneous work force. The labor market is segmented as a result of efficiency considerations and minimum wage laws. The basic model is then extended to account for unemployment benefits, income taxation, and imperfect labor mobility across sectors. The analysis indicates, among other results, that a reduction in unemployement benefits has a positive effect on output of tradable goods by lowering both the level of efficiency wages and the relative rent captured by skilled workers.

Series:

Working Paper No. 94/56

Subject:

English

Publication Date:

May 1, 1994

ISBN/ISSN:

9781451968248/1018-5941

Stock No:

WPIEA0561994

Format:

Paper

Pages:

50

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