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It is often argued that informal labor markets in developing countries promote growth by reducing the impact of regulation. On the other hand informality may reduce the amount of social protection offered to workers. We extend the wage-posting framework of Burdett and Mortensen (1998) to allow heterogeneous firms to decide whether to locate in the formal or the informal sector, as well as set wages. Workers engage in both off the job and on the job search. We estimate the model using Brazilian micro data and evaluate the labor market and welfare effects of policies towards informality.
Authors
Research Fellow Yale University
Costas is a Research Fellow of the IFS and a Professor of Economics at Yale University and a Visiting Professor at University College London.
Research Fellow Sciences Po and University College London
Jean-Marc is a Research Fellow of the IFS and a Professor of Economics at Sciences Po, Paris, and University College London.
Renata Narita
Working Paper details
- DOI
- 10.1920/wp.ifs.2012.1216
- Publisher
- IFS
Suggested citation
C, Meghir and R, Narita and J, Robin. (2012). Wages and informality in developing countries. London: IFS. Available at: https://ifs.org.uk/publications/wages-and-informality-developing-countries-1 (accessed: 27 April 2024).
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