Macroeconomic Adjustment with Segmented Labor Markets

By Joshua Aizenman, Pierre-Richard Agénor

May 1, 1994

Preview Citation

Format: Chicago

Joshua Aizenman, and Pierre-Richard Agénor. Macroeconomic Adjustment with Segmented Labor Markets, (USA: International Monetary Fund, 1994) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Employment, Labor markets, Minimum wages, Unemployment, Wages

Keywords: Efficiency wage, Labor market, Minimum wage, WP

Publication Details

Pages:

50
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1994/056
Stock No:

WPIEA0561994
ISBN:

9781451968248
ISSN:

1018-5941

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