Impact of Global Economic Crisis on the Employment and Migrant ...

4.4 Labour marketLabour is measured in efficiency units. First <strong>of</strong> all, it is important to emphasize that the workersare heterogeneous. Suppose that a representative worker embodied with the following utilityfunction as equation (4.22).1U I Le(4.22)Where I is money income or the worker’s consumption, Le is the utility that the worker getleisure. is the worker’s preferences between income and leisure <strong>of</strong> each individual. Note thatfocusing on the heterogeneity <strong>of</strong> firms and workers, the informality arises in a model withheterogeneous pr<strong>of</strong>it maximizing firms to choose between formal and informal business. Theadvantage <strong>of</strong> the formal over informal businesses is the capital accessibility. Rawiwong etal(2009) reports a survey with 1,000 informal workers in Thailand. It is found that the firstsevere occupational problem is the financial shortage. It should be noted that this aspect isalso emphasized by To(2008) about the different ability to adjust the capital requirement. Heassumes that the formal enterprises have a fixed production cost <strong>of</strong> capital, while the informalemployer’s capital requirements are much more flexible and they have constant fixedproduction cost.On the employer side, suppose employers the equation (4.23) represents the formal sector.The marginal revenue products <strong>of</strong> formal and informal worker are donated by iand . ftfisthe tax that the informal employment must pay. The employer in the formal sector and informalsector maximizes its pr<strong>of</strong>its as the equation (4.23).fl l w 1 t )(4.23)ffff(fSince the employer in the formal sector tends to hire the formal employer, yet they have to paytaxes. Even though the formal sector employs the high skilled migrant workers only registeredone. On the other hand, the informal sector tends to hire the informal worker as well asunregistered migrant. The unregistered migrant does not have to pay tax, but they have to payfor the working permit, and must pay for a fine if they get caught. It is worth to note that sincethis study assumes that the productivity <strong>of</strong> the locals or migrants does not different, theregistered migrants are equally treated as the formal locals. The unregistered migrants areconsidered as the informal locals, yet they have the chance to get caught. I apply torepresent the chance to be caught and break the rules. It can reflect the level <strong>of</strong> lawenforcement. The higher level <strong>of</strong> law enforcement escalates the probability to be caught.1> ≥0. It can also imply the hardship to work in Thailand.iunli iliwilmwm(1)(4.24)Since the productivity <strong>of</strong> the local and migrant is assumed to be the same, it implies arelationship between unregistered migrants and informal worker as (4.25). It is worth to notethat