Maarek, Paul (2012): Labor share, informal sector and development.
Download (375kB) | Preview
This paper aims to understand the pattern of the labor share of income during the development process. We highlight a U-shapped relationship between development and the labor share. Our theory emphasizes the interplay between firms'monopsony power and the size of the informal sector when the formal labor market has frictions. The size of the informal sector parameterizes workers'outside opportunities in wage setting. In the first stage of development, productivity gains are not compensated by wage increases, as most of workers'outside opportunities depend on the informal sector whose productivity remains unchanged. The labor share decreases as a result. In the second stage of development, outside opportunities rely more on productivity in formal firms as the formal sector expands. Consequently, the labor share increases. We then use a policy experiment, namely capital account liberalization episodes, in order to determine the causal impact of economic development on the labor share.
|Item Type:||MPRA Paper|
|Original Title:||Labor share, informal sector and development|
|Keywords:||Development ; Informal sector ; Labor share ; Matching frictions|
|Subjects:||E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E25 - Aggregate Factor Income Distribution
O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements
J - Labor and Demographic Economics > J4 - Particular Labor Markets > J42 - Monopsony ; Segmented Labor Markets
|Depositing User:||Paul Maarek|
|Date Deposited:||12. May 2012 23:46|
|Last Modified:||12. Feb 2013 13:51|
Acemoglu, D., Guerrieri., V., 2008. Capital intensity and non-balanced endogenous growth., Journal of Political Economy., 116, 467-98
Albrecht, J., Navarro, L., Vroman, S., 2009. The eects of labor market policies in an economy with an informal sector. Economic Journal 119(539), 1105-29
Albrecht, J., Gautier, P., Vroman, S., 2006. Equilibrium directed search with multiple applications. Review of Economic Studies 73, 869-91
Amaral, P.S., Quintin, E., 2006. A competitive model of the informal sector. Journal of Monetary Economics 53(7), 1541-53
Azmat, G., Manning, A., Van Reenen, J., 2007. Privatization, entry regulation and the decline of labour share of GDP: a cross-country analysis of the network industries. CEPR Discussion Paper No. 6348, Centre for Economic Policy Research, London.
Bentolila, S. and Saint-Paul, G. (2003). Explaining movements in the labor share, Contributions to Macroeconomics 3(1).
Blanchard, O.J., Giavazzi, F., 2003. Macroeconomic effects of regulation and deregulation on goods and labor markets. Quarterly Journal of Economics 118, 879-908
Baily, M., Farrell, D., Remes, J., 2005. Domestic services: The hidden key to growth. Mimeo. McKinsey Global Institute.
Banerjee, A.V., Dufflo, E., 2007. The Economic Lives of the Poor. Journal of Economic Perspectives 21(1), 141-168
Berman, E., 1997. Help wanted, job needed: Estimates of a matching of a matching function from employment service data. Journal of Labor Economics 15(1), 251-92
Bourguignon, F., Morrisson, C., 1998. Inequality and development: the role of dualism. Journal of Development Economics 57, 233-57
Checchi, D., Garcia-Penalosa, C., 2009. Labour market institutions and the personal distribution of income in the OECD. Forthcoming in Economica
Chinn, M., Ito, H., 2007. Notes on the calculation of chinn-ito financial openness variable. Mimeo
Daudey, E., Decreuse, B., 2006. Higher education, employers' monopsony power and the labor share in OECD countries. GREQAM WP
Daudey, E., 2005. The sharing of value-added: data sources. Mimeo
Dauday, E., Garcia-Penalosa, C., 2006. The personal and the factor distribution of income and the factor distribution of income in cross-section of countries. Journal of Development studies.
Decreuse, B., Maarek, P., 2009. Foreign direct investment and the labor share in developing countries: A theory and some evidences. GREQAM WP
de Soto, H., 1989. The other Path: The invisible Revolution in the Third Worlds. New York: Harper and Row Publishers.
de Soto, H., 2000. The Mystery of Capital. Why Capitalism Triumphs in the West and Fails Everywhere Else. New York: Basic Books.
Dessy, S., Pallage, S., 2003. Taxes, inequality and the size of the informal sector. Journal of Development Economics 70, 225-33
Djankov, S., La Porta, R., Lopez-de-Slimanes, F., Shleifer, A., 2002. The regulation of entry. Quarterly Journal of Economics 117(1),1-37
Duffy, J., Papagiorgiou, C., 2000. A cross-country empirical investigation of the aggregate production function specication. Journal of Economic Growth 5, 87-120
Farrell, D., 2004. The hidden dangers of the informal economy. McKinsey Quarterly (3) 26-37
Fleck, S., Sorrentino, C., 1994. Employment and unemployment in Mexico's labor force. Monthly Labor Review, 3-31
Field, G., 1979., A welfare economic approach to growth and distribution in the dual economy. Quarterly Journal of Economics 93, 325-53
Garcia-Penalosa, C., Orgiazzi, E., 2009. Factor components of inequality: Cross-country differences and time changes. LIS working paper no 503
Gollin, D., 2001. Getting income shares right. Journal of Political Economy 110, 458-75
Gong, X., van Soest, A., 2002. Wage dierentials and mobility in the urban labor market: A panel data analysis for Mexico. Labor Economics 9, 513-29
Gong, X., van Soest, A., Villagomez, E., 2004. Mobility in the urban labor market: A panel data analysis for Mexico. Economic Development and Cultural Change 53(1), 1-36
Harris, J.R., Todaro, M.P., 1970. Migration, Unemployment and Development: A two-Sector Analysis. American Economic Review 60(1), 126-42
Harrison, A.E., 2002. As globalization eroded labor's share? Some cross country evidence. Mimeo. University of California Berkeley
Henry, P., Sasson, D.,2009. Capital market integration and wages. Working Paper 15204. National Bureau of Economic Research
Jones, C. I. (2003). Growth, capital shares, and a new perspective on production functions, Proceedings (Nov).
Kaldor, N., 1955. Alternatives theories of distribution. Review of Economic Studies 23(2), 83-100
Knight, J., 1976. Explaining income distribution in less developed countries: a framework and an aganda. Oxford Bulletin of Economics and Statistics 38, 161-177
Kuznets, S., 1955. Economic growth and income inequality, American Economic Review 45, 1-28
La Porta, R., Shleifer, A., 2008. The Unofficial Economy and Economic Development. Brookings Papers on Economic Activity
Maloney, W.F., 1998. Self-employment and labor turnover in LDCs: Cross country evidence. Manuscript. World Bank
Maloney, W.F., 1999. Does informality imply segmentation in urban labor markets? Evidence from sectoral transitions in Mexico. World Bank Economic Review 13 (2), 275-302
Maloney, W.F., 2002. Distortions and protection in the Mexican labor market. Working paper No. 138. Center for Reseach on Economic Developement and Policy Reform, Stanford
Marcouiller, D., Ruiz de Castilla, V., Woodru, C., 1997. Formal measures of the informal-sector wage gap in Mexico, El Salvador, and Peru. Economic Development and Cultural Change 45(2), 367-92
Mazumdar, D., 1983. Segmented labor markets in LDCs. American Economic Review, Papers and Procedings73(2) 254-9
McKenzie, D.J., Woodruff, C., 2006. Do entry costs provide an empirical basis for poverty traps? Evidence from Mexican microenterprises. Economic Development and Cultural Change 55 (1), 3-42
Nunziata, L., 2008. Aggregate self-employment patterns. University of Padova WP
Ortega, D., Rodriguez, F., 2006. Are capital shares higher in poor countries? Evidence from industrial surveys. Wesleyan Economics WP 2006-023
Pissarides, C., 2000. Equilibrium Unemployment Theory. MIT Press, 2nd edition
Rauch, J.E., 1991. Modeling the Informal Sector Formally. Journal of Development Economics 35(1), 33-47.
Rauch, J.E., 1993. Economic Development, urban underemployment, and income inequality. Canadian Journal of Economics 93, 901-18
Rama, M., 1998. How bad is unemployment in Tunisia? Assessing labor market efficiency in a developing country. World Bank Research Observer 13, 59-77
Robinson, S., 1976., A note on the U hypothesis relating income inequality and economic development. American Economic Review 66, 437-40
Rodrik, D., 1997. As globalization gone to far? Institute for International Economics, Washington D.C
Satchi, M., Temple, J., 2009. Labor market and productivity in developing countries. Review of Economic Dynamics. Forthcoming
Schneider, F., Enste, D., 2000. Shadow economies: size, causes, and consequences. Journal of Economic Literature 38, 77-114
Solow, R., 1958. The constancy of relative shares. American Economic Review 48, 618-631
Straub, S., 2005. Informal sector: The credit market chanel. Journal of Development Economics 78, 299-321
Sutheraman, S., (ed). The urban informal sector in developing countries. (Geneva: International labor office)
Tokman, V. 1992. Beyond Regulation: The Informal Sector in Latin America. Bolder: Lynne Rienner Publishers.
Yamada, G., 1996. Urban informal employment and self-employment in developing countries: theory and evidence. Economic Development and Cultural Change 44, 289-314
Yashiv , E., 2000. The determinants of equilibrium unemployment. American Economic Review 90(5), 1297-1322
Zenou, Y., 2008. Job search and mobility in developing countries. Theory and policy implications. Journal of development economics 86, 336-5