TITLE:
Informal Wage, Informal Price and Extortion under Migration and Tariff Reform*
AUTHORS:
Biswajit Mandal, Saswati Chaudhuri
KEYWORDS:
International Trade, Corruption/Extortion, Informal Sector, Migration, General Equilibrium
JOURNAL NAME:
Modern Economy,
Vol.2 No.1,
February
24,
2011
ABSTRACT: In this paper we propose a theoretical model where formal and informal sectors co-exist in tandem. Trade union segregates some labor from being formal. Capital is not allowed to freely move between formal and informal sectors. Using this sort of framework it has been shown that immigration of unskilled workers re-duces the return to informal labor and makes the informal good relatively cheap. A tariff slash also impinges on similar kind of results. In both the cases informal capitalists gain. Moreover, what is more striking is that both migration and tariff reform are equally bad for the economy as a whole since these policies enhance the ‘unproductive’ element or labor in the society which is really costly as these laborers could have been used to produce some more consumable commodities.