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<p>By constructing three-sector general equilibrium models, this paper investigates how privatization influences regional wage rates, inter-regional employment, and social welfare in the presence of an informal sector. In the short-term basic model with sector-specific capital, an increase in the degree of privatization will decrease formal-sector employment, increase agricultural-sector employment while decreasing its wage rate, conditionally decrease informal-sector employment while increasing its wage rate, and reduce social welfare. When partially relaxing capital mobility constraints, we find&#xa0;the results remain largely consistent: privatization continues to decrease formal-sector employment, increase agricultural-sector employment while conditionally lowering its wage rate, reduce informal-sector employment while raising its wage level, and reduce social welfare. However, in the long-term model where capital moves freely across all sectors, most outcomes differ from those in the basic model, and this paper identifies the conditions under which the conclusions hold.</p>

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The impacts of privatization on employment, wages, and welfare in the presence of an informal sector

  • 期刊论文

  • 发表日期：

    2025年3月4日

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  • Jiancai Pi,
  • Xinyi Liu,
  • Jun Yin

摘要

By constructing three-sector general equilibrium models, this paper investigates how privatization influences regional wage rates, inter-regional employment, and social welfare in the presence of an informal sector. In the short-term basic model with sector-specific capital, an increase in the degree of privatization will decrease formal-sector employment, increase agricultural-sector employment while decreasing its wage rate, conditionally decrease informal-sector employment while increasing its wage rate, and reduce social welfare. When partially relaxing capital mobility constraints, we find the results remain largely consistent: privatization continues to decrease formal-sector employment, increase agricultural-sector employment while conditionally lowering its wage rate, reduce informal-sector employment while raising its wage level, and reduce social welfare. However, in the long-term model where capital moves freely across all sectors, most outcomes differ from those in the basic model, and this paper identifies the conditions under which the conclusions hold.