Capital Mobility and Informal Wage / 261 Capital Mobility and Informal Wage in a Small EconomyTwo Examples

We conduct two policy experiments in a general equilibrium framework with an informal sector. The first deals with a liberal trade policy and the second with a decline in the unionized wage rate. In both cases, informal workers gain if capital moves between the formal and the informal segments and lose if it does not. These results are independent of the factor intensity rankings of the sectors. Both of these results have important policy implications