The Wage Effect of Informal Sector in Developing Countries
Journal of World Economic Research
Volume 4, Issue 5-1, September 2015, Pages: 53-62
Received: May 30, 2015; Accepted: Jun. 24, 2015; Published: Aug. 13, 2015
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Authors
Tchakounté Njoda Mathurin, Faculty of Economic Sciences and Management, University of Ngaoundéré, Ngaoundéré, Cameroon
Abdoul Karim, Faculty of Economic Sciences and Management, University of Maroua, Maroua, Cameroon
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Abstract
A theoretical model of wage effect of informal sector has been developed with special reference of informal sector. The implication of the theory in the context of a model of a competitive labour market where the wage impact of informal employment is influenced by such factors as the elasticity of product demand, the rate at which the consumer base as workers enter informal sector, the elasticity of supply of capital, and the elasticity of substitution across inputs of production. The analysis reveals that the short-run wage effect of informalisation is negative in a wide array of possible scenarios, and that even the long-run effect of informalisation is positive, but may be negative if the impact of informalisation on the potential size of the consumer base is smaller than its impact on the size of the workforce. These predictions are then empirically validated using two different measures of the size of the informal sector. The results are shown to be robust with respect to a variety of econometric regressions
Keywords
Informal Sector, Real Wage, Labour Market, Competitive Market
To cite this article
Tchakounté Njoda Mathurin, Abdoul Karim, The Wage Effect of Informal Sector in Developing Countries, Journal of World Economic Research. Special Issue: The Globalization and Economic Structure Changes. Vol. 4, No. 5-1, 2015, pp. 53-62. doi: 10.11648/j.jwer.s.2015040501.17
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