Resumen de Contractual dualism, market power and informality

Arnab K. Basu, Nancy H. Chau, Ravi Kanbur

• We develop a search-theoretic model of contractual dualism in formal and informal labour markets. The model (i) provides the micro-underpinnings for endogenous determination of employer market power in the formal and informal sectors, (ii) offers a unified and coherent set-up whereby a host of salient features of developing country labour markets can be explained together and (iii) places for the first time the Stiglerian prescription of the optimal (unemployment minimising) minimum wage in the broader context of labour markets where formal job creation is costly, where employer market power is endogenous and where formal employment, informal employment and unemployment coexist.