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Fighting Informality in Segmented Labor Markets. A General Equilibrium Analysis Applied to Uruguay

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  • Carmen Estrades
  • María Inés Terra

Abstract

As in other Latin American countries, labor informality in Uruguay mainly affects less educated workers, who are also more vulnerable to poverty. We analyze the impact of some policies against informality in Uruguay, applying a general equilibrium model with a segmented labor market specification. We simulate two sets of policies: payroll tax cuts and increased enforcement in the informal sector. Both sets of policies are effective in reducing informality, but the effect on poverty is not straightforward. Poverty falls as informality is reduced; however, as enforcement policies increase hiring costs for informal firms, wages of low-skilled workers decline and poverty increases.

Suggested Citation

  • Carmen Estrades & María Inés Terra, 2011. "Fighting Informality in Segmented Labor Markets. A General Equilibrium Analysis Applied to Uruguay," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 48(1), pages 1-37.
    • Handle: RePEc:ioe:cuadec:v:48:y:2011:i:1:p:1-37
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    1. Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June.
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    Cited by:

    1. Arturo Antón, 2014. "The effect of payroll taxes on employment and wages under high labor informality," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-23, December.
    2. Estrades, Carmen & Terra, María Inés, 2012. "Commodity prices, trade, and poverty in Uruguay," Food Policy, Elsevier, vol. 37(1), pages 58-66.
    3. Antón, Arturo & Boyd, Roy & Elizondo, Alejandra & Ibarrarán, María Eugenia, 2016. "Universal social insurance for Mexico: Modeling of a financing scheme," Economic Modelling, Elsevier, vol. 52(PB), pages 838-850.

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    More about this item

    Keywords

    Informality; labor market; general equilibrium model; policies; poverty;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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