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Informal Wage And Formal Sector Productivity : Theory And Evidences From India

Author

Listed:
  • Dibyendu Maiti

    (IEG)

  • Sugata Marjit

Abstract

We express a doubt on the conventional wisdom namely, of a positive relationship between wage and productivity, of a formal sector firm in a developing economy where the firm can either go for subcontracting to the informal sector to minimize wage cost along with apprehension of extra-legal cost and/or investment in R&D for in-house production. We show that a rise of the formal wage does not necessarily ensure higher R&D and labour-productivity of the formal firm while a rise of the informal sector wage must improve R&D and the resultant labour-productivity in the firm. Thus countries with a vast segment of lowly-paid informal workers will also exhibit lowly-productive formal sector workers.

Suggested Citation

  • Dibyendu Maiti & Sugata Marjit, 2009. "Informal Wage And Formal Sector Productivity : Theory And Evidences From India," Labor Economics Working Papers 22928, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:laborw:22928
    as

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    File URL: http://www.eaber.org/node/22928
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    Citations

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    Cited by:

    1. Dipankar Gupta, 2019. "Against Thresholds: Raising Capacity and Formalizing the Economy," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 62(1), pages 15-30, March.
    2. Sanjay RODE, 2015. "Employment Pattern, Skills and Training Issues among Informal Sector Workers in Mumbai Metropolitan Region," Economia. Seria Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 18(1), pages 125-138, June.
    3. Beladi, Hamid & Mukherjee, Arijit, 2017. "Union bargaining power, subcontracting and innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 137(C), pages 90-104.

    More about this item

    Keywords

    Informal Wage; poverty; Labour Productivity; R&D Investment; Outsourcing;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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