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Contribution Details
| Type | Journal Article |
| Scope | Discipline-based scholarship |
| Title | Exclusive goods and formal-sector employment |
| Organization Unit | |
| Authors |
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| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Language |
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| Journal Title | American Economic Journal: Macroeconomics |
| Publisher | American Economic Association |
| Geographical Reach | international |
| ISSN | 1945-7715 |
| Volume | 3 |
| Number | 1 |
| Page Range | 242 - 272 |
| Date | 2011 |
| Abstract Text | We explore how the underemployment problem of less-developed economies is related to income inequality. Consumers have nonhomothetic preferences over differentiated products of formal-sector goods and thus inequality affects the composition of aggregate demand via the price-setting behavior of firms. We find that high inequality divides the formal sector into mass producers and exclusive producers (which serve only the rich); high inequality generates an equilibrium where many workers are crowded into the informal economy; and an increase in subsistence productivity raises the unskilled workers' wages and boosts employment due to the higher purchasing power of poorer households. |
| Digital Object Identifier | 10.1257/mac.3.1.242 |
| Other Identification Number | merlin-id:4410 |
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