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Modeling Labor Market Segmentation

Author

Listed:
  • Luis Araujo
  • Vladimir Ponczek

Abstract

In this paper, we develop a model that captures stylized facts of informal labor markets. We show how justice interference on informal contracts leads to penalties in the equilibrium wage of informal workers. We also state that, in a repeated game situation, an equilibrium where the wage gaps between formal and informal contracts diminish with the worker skills exists and is unique. These claims are supported by two assumptions: (i) the existence of a technology that makes possible a ?rm to buy information about the worker productivity and past actions; (ii) unskilled workers have a more homogenous productivity than the skilled workers.

Suggested Citation

  • Luis Araujo & Vladimir Ponczek, 2009. "Modeling Labor Market Segmentation," Working Papers 09_04, Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto.
    • Handle: RePEc:fea:wpaper:09_04
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Labor market; Informality; Wage Di¤erentials.;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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