Working Paper Series, Department of Economics, Copenhagen Business School
Ann-Sofie Kolm and Birthe Larsen
MORAL COSTS, THE INFORMAL SECTOR AND UNEMPLOYMENT
Abstract: While examining the macroeconomic effects of increased
government control of the informal sector, this paper develops a two-sector
general equilibrium model featuring matching frictions and worker-firm wage
bargaining. The same good is produced in the formal and in the informal
sector. Moral considerations are determinant for whether the worker search
for jobs in the formal or in the informal sector. We analyse the impact of
higher punishment fees and a higher audit rate on wages, sector division,
unemployment and welfare.
Keywords: Employment; Unemployment; Wages; Macroeconomics; (follow links to similar papers)
JEL-Codes: E20; E24; (follow links to similar papers)
18 pages, January 22, 2001
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