Macroeconomic Adjustment with Segmented Labor Markets

Download or read book Macroeconomic Adjustment with Segmented Labor Markets written by Pierre-Richard Agénor and published by International Monetary Fund. This book was released on 1994-05-01 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.