Labor market competitiveness and the size of the informal sector |
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Authors: | Hideaki Goto Yukichi Mano |
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Institution: | (1) National Graduate Institute for Policy Studies, 7-22-1 Roppongi, Minato-ku Tokyo, 106-8677, Japan;(2) Foundation for Advanced Studies on International Development, Tokyo, Japan |
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Abstract: | This paper formalizes the dynamics of the informal sector with a special emphasis on the levels of labor market competitiveness
in the formal and informal sectors. Specifically, it analyzes the effects of improved productivity and higher entry costs
into the formal sector on the size of the informal sector for different degrees of competitiveness in the labor markets. We
show that when the informal labor market is competitive while the formal labor market is not, lower production technology
in the formal sector or a higher entry cost reduces the size of the informal sector in the long run. |
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Keywords: | |
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