Labor Market Representation in Quantitative Macroeconomic Models for Developing Countries: An Application to Cote d'Ivoire

Abstract

This paper presents a quantitative macroeconomic model that accounts for key features of the labor market in developing countries. Primarily inspired by CA´te d'Ivoire, the model contrasts a formal urban sector, where wages are rigidly fixed and employment is subject to firms' profit-seeking behavior, with urban and rural informal sectors, where wages are flexible and employment is affected by fluctuations in formal sector employment. Dynamic simulations assess the impact on key macroeconomic variables of exogenous and policy-induced shocks, highlighting the roles of rural-urban migrations and capital accumulation in the informal urban sector.