Efficiency in a Search and Matching Economy with a Competitive Informal Sector

We consider a dual labor market with a frictional formal sector and a competitive informal sector. We show that the size of the informal sector is generally too large compared to the optimal allocation of the workers. It follows that our results give a rationale to informality-reducing policies.

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Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Charlot, Olivier, Malherbet, Franck, Ulus, Mustafa
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2012
Subjects
Informal economy
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Summary:We consider a dual labor market with a frictional formal sector and a competitive informal sector. We show that the size of the informal sector is generally too large compared to the optimal allocation of the workers. It follows that our results give a rationale to informality-reducing policies.