Segmented Input Markets and Non-Traded Good

Labour markets in LDCs are usually segmented into formal (or organized) and informal (or unorganized) sectors. Typically the formal sector is the high-wage, unionized sector with job security and fringe benefits whereas in the informal or unorganized sectors, wages are determined by market forces, are low compared to the unionized sectors and jobs are mostly casual. Self-employed petty producers and traders in the informal sectors are often those who cannot get jobs in the high-wage organized segment of the labour market. As well documented in Agenor (1996), Cole and Sanders (1985), Fields (1990) and Mazumdar (1983, 1993), about sixty percent of total labour force in the developing world are employed in such non-unionized informal sectors. In case of India, according to the 1991 Census Report, the figure is staggering ninety percent during the 1980s. The situation has not changed much in the 1990s. In fact, Dev (2000) finds that during 1973-1993, in almost all the sectors the share of informal segments has either remained the same or has increased. This has been highest in agriculture around 99 percent, followed by about 90 and 81 percents respectively in construction and manufacturing.