Macroeconomic Policy in the Presence of an Irregular Sector
This paper is concerned with the policy implications of the combined presence of a regular observed and an irregular unobserved sector. It develops a two-sector model in which the regular sector is subject to fixed prices and wages, while the irregular sector wages may move freely. A number of regimes are shown to be possible and for each, we examine the effects of different policies on regular and overall employment. Ignorance of the existence of an irregular sector can lead to employment policies which ultimately reduce the overall level of employment.
KeywordsIncome Expense Defend
Unable to display preview. Download preview PDF.
- Barro, R. and H. Grossman (1971), “A General Disequilibrium Model of Income and Employment”, American Economic Review 61, 82–93.Google Scholar
- Becker, G.S. (1971), The Economics of Discrimination, Chicago: University of Chicago Press.Google Scholar
- Frey, G. and W. Pommerehne (1982), “Measuring the Hidden Economy: Though this be Madness, yet there is Method in it?”, in Vito Tanzi, ed. The Underground Economy in the United States and Abroad.Google Scholar
- Malinvaud, E. (1977), The Theory of Unemployment Reconsidered, Oxford.: Basil Blackwell.Google Scholar
- Smith, A. (1981), “ A Review of the Informal Economy in the European Economy”, Economic Paper 3, Commission of the European Community.Google Scholar