Should informal sector be subsidised?

dLu/ dWr = 1/D (((L -Lr) - Lu(dWu /dWr))(ki -kr) + (Lu dku /dWr +Li dki/dWr

+Lr(dkr∕dWr))(Wi -Wr) - (Wikr -Wrki) dU/dWr) > ,=,< 0

dLi/dWr = 1/D ((( -Lu(dku/dWr) + Li(dki/dWr) +Lr(dkr/dWr) (Wu -Wr) + (Wukr -

Wrku) (dU/dWr) -((L -Lr) -Lu(dWu /dWr)) (ku -kr )) > ,=, < 0

And (dLr/dWr) = 1/D((( (L - Lr) - Lu( dWu/dWr)) (ku -kr) + (Lu(dku/dWr) +

Li(dki/dWr) + Lr(dkr/dWr)) (Wu -Wi) +(Wiku -Wuki) dU/dWr ) >, =, < 0

Now, (dLj/dPi) = (dLj/dWr) (dWr/dPi) for j = u,i and r.

References

Bandyopadhyay , M. and M. R. Gupta(1995a) “Development policies in the presence of
an informal sector : A note” Journal of economics 61,301 - 315.

Calvo,G.A.(1978)“Urban unemployment and wage determination in LDCs: trade
unions in the Harris-Todaro model” International Economic Review 19,65-81.

Chandra, V. and M. A. khan(1993)“Foreign investment in the presence of informal
sector” Economica 60, 79-103.

Fields, G.(1975)“Rural-urban migration, urban unemployment and underemployment
and job search activity in LDCs” Journal of Development Economics 2, 165-187.

Gupta, M. R.(1993) “Rural-Urban migration, informal sector and development policies
: a theoretical analysis” Journal of Development Economics 41,137-151.

Harris , J. R. and M. P. Todaro.(1970) “ Migration, Unemployment and Development
: A Two-Sector Analysis “ American Economic Review Vol.60, 126-142.

Khan, M.A. and Naqvi,S.N.H.(1983) “Capital Markets and Urban Unemployment”
Journal of International EconomicsVol.15, 367- 385.

Leibenstein, H.(1957)“Underemployment in Backward Economies”Journal of Political
EconomyVol.65, 91-103.

Quibria, M. G.(1988) “Migration, Trade Unions and the Informal Sector : a note on
Calvo” International Economic Review29, 557-563.

Stiglitz, J. E.(1976)“The efficiency wage hypothesis, surplus labour and the distribution
of labour in LDCs” Oxford Economic Papers 28, 185-207.

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