ECONOMIC REFORM , LABOUR TRAINING AND THE INFORMAL SECTOR- A THEORETICAL ANALYSIS.*

We consider a small open Harris-Todaro (1970) economy complementing global exposure, informal labour training and the urban unemployment. Workers acquire skills through apprenticeship training in the urban informal sector. The informal employers are motivated to train the apprentices by the apprenticeship fees paid to them. The main purpose of the paper is to examine the effects of trade liberalisatioon on the wage gap between skilled and unskilled workers, on the skilled ability and on the level of urban unemployment.My analysis shows that a tariff reduction gives different results depending upon the nature of production structure , which is related to the nature of capital mobility among the different sectors.The major findings of the paper may explain the observed behaviour of the informal sector in the post reform period.