ON-THE-JOB SEARCH, URBAN INFORMAL SECTOR AND DEVELOPMENT POLICIES — A GENERAL EQUILIBRIUM ANALYSIS

Abstract

The purpose of this paper is to examine Field's (1989) proposition in a multisector general equilibrium model with imperfect capital mobility. The effects of different fiscal policies on the equilibrium rate of urban unemployment are also examined. The main findings are (i) more efficient on-the-job search from the rural sector raises equilibrium urban unemployment rate whereas (ii) increased job search efficiency from the urban informal sector lowers this rate. Aditionally, (iii) urban price subsidy policy lowers the equilibrium urban unemployment rate, and (iv) rural subsidy policy raises this rate.