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BCAM 1504
M. Ali Choudhary, Saima Mahmood and Gylfi Zoega
Informal Labour Markets in Pakistan

Abstract
This paper describes the results of a survey of informal-sector firms in Pakistan. Firms belong to the informal sector mainly because of scarce financial resources. There are significant differences in the level of wages and the flexibility of wages with the informal sector having both lower wages and greater flexibility than the formal sector. While minimum wages are less binding in the informal sector, indexation of wages to inflation is more common. In spite of these differences the reasons for not cutting wages in a recession are similar between the two sectors.

Keywords: Informal sector, wage setting, wage rigidity.

JEL Classification: E24, E26, J31, J46.

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