Labor Earnings Dynamics with a Large Informal Sector

The Effects of Labor Market Policies in an Economy with an Informal Sector

In this paper we construct a search and matching model that allows us to analyze the effects of labor market policies in an economy with a significant informal sector. What we mean by an informal sector is a sector that is unregulated and hence not directly affected by labor market policies such as severance or payroll taxes. Nonetheless we find that labor market policies in effect only in the ...

Pension Design with a Large Informal Labor Market: Evidence from Chile

Pension Design with a Large Informal Labor Market: Evidence from Chile This paper investigates empirically the fiscal and welfare trade-offs involved in designing a pension system when workers can avoid participation by working informally. A dynamic behavioral model captures a household’s labor supply, formal/informal sector choice and saving decisions under the rules of Chile’s canonical priva...

Modernizing the informal sector

Th e multiplicity of policies proposed to support the informal sector refl ects the lack of a common defi nition. Although they may produce positive eff ects, these are limited and fail to constitute a comprehensive strategic approach. Th e diff erent interpretations in the absence of a common defi nition as well as the strategies emerging from them are reviewed. Th e identifi cation of informa...

Optimal Policies with an Informal Sector

This paper characterizes optimal policies in the presence of tax evasion and undocumented workers. In equilibrium, domestic workers may work exclusively in the formal sector or also in the informal sector. Surprisingly, in equilibrium, wages are always equalized between domestic and undocumented workers, even if they do not work in the same sectors of the economy. This is driven by the interact...

Understanding the "informal Sector": a Survey