Why are Urban Formal Sector Wages in LDCs above the Market-Clearing Level?

In this paper we link urban labor market dualism and the fixity of formal sector wages in expected income migration models with urban agglomeration economies. A possible productivity- efficiency rationale for the "institutional" wage is identified and explored. In addition, a rationalization for the informal sector is suggested in this context. We propose a motivation for determinating high urban wages as part of a choice-theoretic behavioral framework, perform illustrative simulations of factors influencing an equilibrium urban wage premium, and point out directions for further research delineated by our analytical propositions.