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
Views 4033 Downloads 88
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
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
Tchakounté Njoda Mathurin,
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.
Badaoui, E., Strobl, E. and Walsh, F. (2010), The Formal Sector Wage Premium and Firm Size, Journal of Development Economics, 91(1): 37-47.
Blunch, N.-H., Canagarajah, S., and Raju, D. (2001), The Informal Sector Revisited: A Synthesis across Space and Time, unpublished, World Bank.
Carneiro, F. G. and Henley, A. (1998), Wage Determination in Brazil: the Growth of Union Bargaining Power and Informal Employment, Journal of Development Studies, 34(4): 117-138.
Chong, A. and López-de-Silanes, F. (2004), Money Laundering around the World, Washington, D. C., United States: Inter-American Development Bank, Manuscript.
Dickens, W. and Lang, K. (1985), A Test of the Dual labor Market Theory, American Economic Review, 75(4): 792-805.
Dixit, A. and Norman, V. (1980), The Theory of International Trade: A Dual, General Equilibrium Approach, Cambridge University Press.
Fields, G. S. (1975), Rural-Urban Migration, Urban Unemployment and Underemployment, and Job Search Activity in LDCs, Journal of Development Economics, 2: 165-187.
Ghose, A. K. (2003), Jobs and Incomes in a Globalizing World, International Labour Office, Geneva.
Hamermesh, D. (1993), Labor Demand, Princeton University Press.
Henley, A., Arabsheibani, G. R. and Carneiro, F. G. (2007), On Defining and Measuring the Informal Sector, Policy Research Working Paper, 3866, World Bank.
Heintz, J. and Pollin, R. (2003), Informalization, Economic Growth and the Challenge of creating viable Labor Standards in Developing Countries, Working Paper, 60, Political Economy Research Institute, Amherst, MA.
Hicks, J. R. (1932), The Theory of Wages, London: Macmillan.
Kennan, J. (1998), The Hicks-Marshall Rules of Derived Demand: An Expository Note, University of Wisconsin, Madison.
Marjit, S. and Maiti, D. (2006), Globalization, Reform and Informal sector, in Guha Khasnobis, B and Kanbur, R. (eds), Informal Labor Markets and Development, UK: McMillan-Palgrave, 9-28.
Pemberton, J. (1989), Marshall’s Rules for Derived Demand: A Critique and Generalisation, Scottish Journal of Economics, 36(4): 396-405.
Rufer, T. and Knight, J. (2007), Informal Sector Labor Markets in Developing Countries, University of Oxford.
Schneider, F. and Klingmair, R. (2003), Shadow Economies around the World: What do we know?, Linz-Auhof, Austria: Johannnes Kepler University, Manuscript.
World Bank (1996), World Development Report, Washington, DC: World Bank.