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Labor productivity growth, informal wage and capital mobility: A general equilibrium analysis

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  • Marjit, Sugata
  • Kar, Saibal

Abstract

The recent growth experience in India highlights the role of skill-based service sector and productivity improvement rather than a significant rise in physical capital accumulation, which has only reached a new height very recently. In this context we study the possible impact of higher productivity of labor in the formal sector on the informal wage in an economy comprising of skilled and unskilled workers. More productive skilled workers depress informal wage in the short-run, but do not affect it in the long run, when capital is fully mobile across sectors. If the productivity of unskilled workers in the formal sector improves, it may have drastically different impact on the informal wage in the short and the long run. Secular labor productivity growth in the informal sector may lead to lower wage for informal workers if capital mobility is restricted between the formal and the informal. However, with full mobility of capital this will not be an equilibrium outcome.

Suggested Citation

  • Marjit, Sugata & Kar, Saibal, 2007. "Labor productivity growth, informal wage and capital mobility: A general equilibrium analysis," MPRA Paper 23912, University Library of Munich, Germany, revised 2008.
    • Handle: RePEc:pra:mprapa:23912
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    References listed on IDEAS

    as
    1. Koujianou Goldberg, Pinelopi & Pavcnik, Nina, 2003. "The response of the informal sector to trade liberalization," Journal of Development Economics, Elsevier, vol. 72(2), pages 463-496, December.
    2. Marjit, Sugata & Ghosh, Sudeep & Biswas, Amit, 2007. "Informality, corruption and trade reform," European Journal of Political Economy, Elsevier, vol. 23(3), pages 777-789, September.
    3. Marjit, Sugata, 2003. "Economic reform and informal wage--a general equilibrium analysis," Journal of Development Economics, Elsevier, vol. 72(1), pages 371-378, October.
    4. Sugata Marjit & Dibyendu S. Maiti, 2005. "Globalization, Reform and the Informal Sector," WIDER Working Paper Series RP2005-12, World Institute for Development Economic Research (UNU-WIDER).
    5. repec:ucp:bknber:9780226299570 is not listed on IDEAS
    6. Sugata Marjit & Saibal Kar & Hamid Beladi, 2007. "Trade Reform and Informal Wages," Review of Development Economics, Wiley Blackwell, vol. 11(2), pages 313-320, May.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Mukherjee, Soumyatanu, 2016. "Technology, trade and ‘urban poor’ in a general equilibrium model with segmented domestic factor markets," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 400-416.
    2. Mukherjee, Soumyatanu, 2017. "Input trade reform and wage inequality," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 145-156.
    3. Ceyhun Elgin & Ferda Erturk, 2019. "Informal economies around the world: measures, determinants and consequences," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 9(2), pages 221-237, June.
    4. Soumyatanu Mukherjee & Thasni T, 2019. "Corruption And Real Wages In General Equilibrium Trade Models," Working papers 348, Indian Institute of Management Kozhikode.

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    More about this item

    Keywords

    skilled labor; productivity growth; informal wage; factor specificity;
    All these keywords.

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • J40 - Labor and Demographic Economics - - Particular Labor Markets - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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