IZA DP No. 6935: Efficiency in a Search and Matching Economy with a Competitive Informal Sector
published in: Economic Letters, 2013, 118(1), 192-194
We consider a dual labor market with a frictional formal sector and a competitive informal sector. We show that the size of the informal sector is generally too large compared to the optimal allocation of the workers. It follows that our results give a rationale to informality-reducing policies.