Macroeconomic Adjustment with Segmented Labor Markets
May 1, 1994
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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.
Subject: Employment, Labor markets, Minimum wages, Unemployment, Wages
Keywords: efficiency wage, labor market, minimum wage, WP
Pages:
50
Volume:
1994
DOI:
Issue:
056
Series:
Working Paper No. 1994/056
Stock No:
WPIEA0561994
ISBN:
9781451968248
ISSN:
1018-5941
