Fragmented Markets: Labour

Pranab Bardhan and Christopher Udry

in Development Microeconomics

Published in print May 1999 | ISBN: 9780198773719
Published online November 2003 | e-ISBN: 9780191595929 | DOI:
 Fragmented Markets: Labour

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Outlines models that tackle the puzzle of wage rigidity existing under conditions of severe unemployment or underemployment in developing countries. It begins with efficiency wage models of agricultural labour markets in which employers pay wages above market‐clearing levels for reasons of nutrition, morale, or the prevention of shirking and absenteeism. Next, a repeated game‐based formalization of implicit cooperation among workers that prevents wage undercutting is presented. A discussion of other, mainly social reasons for segmented labour markets follows. The last section considers rationales for labour‐tying, such as seasonality and heterogeneity in tasks.

Keywords: agriculture; developing countries; efficiency wage; labour‐tying; repeated game; seasonality; segmented labour markets; underemployment; unemployment; wage rigidity

Chapter.  6787 words.  Illustrated.

Subjects: Economic Development and Growth

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