We develop a simple framework to show the effects of trade cost reduction on unionized wage, employment and domestic welfare when a domestic firm strategically chooses the amount of formal in-house production and subcontracting to the informal sector. We show that a lower trade cost increases...

Studies on formal-informal interactions in the labor markets of developing countries claim that economic reform increases the level of informal activity. Although the extent of such claims differs across countries, it is generally believed that reform is likely to depress informal wage by...

We provide an analysis of enforcement policies applicable to formal sector in dual labor markets. Using a framework with heterogeneous firms, endogenous determination of informal wage and politically dictated enforcement strategies, we show that firms which operate both in the formal and...

We provide an analysis of enforcement policies applicable to formal sector in dual labor markets. We use a framework with heterogeneous firms, endogenous determination of informal wage and politically dictated enforcement strategies. Firms which operate both in the formal and informal sectors do...