Modelling the informal sector formally
1991; Elsevier BV; Volume: 35; Issue: 1 Linguagem: Inglês
10.1016/0304-3878(91)90065-4
ISSN1872-6089
Autores Tópico(s)Labor market dynamics and wage inequality
ResumoThe theoretical characterization of formal-informal sector dualism by labor-market dualism is integrated with its empirical characterization by size dualism by supposing that the minimum formal sector wage is only enforced for firms greater than a certain size. A firm's size varies directly with the talent of its enterpreneur-manager, and the choice between formal and informal sector entrepreneurship is determined endogenously. It is then shown that the size gap between the smallest formal sector firm and largest informal sector firm varies directly with the formal-informal sector wage differential, which in turn is shown as expected to increase the further is the minimum wage above the market-clearing wage. The comparative statics of changes in the size of the firm above which the minimum wage is enforced are also examined.
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