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Skilled-Unskilled Wage Inequality And Urban Unemployment

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Author Info

  • HAMID BELADI
  • AVIK CHAKRABARTI
  • SUGATA MARJIT

Abstract

"The impact of trade liberalization on the labor market in the North has drawn tremendous attention in the face of the growing skilled-unskilled wage gap but in the South it has been somewhat neglected. One of the key structural differences between the North and the South is that the South experiences a pronounced rural-urban migration in the presence of urban unemployment. We introduce this feature in the structure of a simple general equilibrium model to analyze the effects of trade liberalization and fragmentation on employment and the skilled-unskilled wage differential in the South. In particular, we show that while fragmentation necessarily improves the unskilled wage and the skilled wage, more lucrative global opportunities for the skilled final product, in the absence of fragmentation, can reduce the rural wage and increase urban unemployment. The effect of fragmentation, ceteris paribus, on the skilled-unskilled wage gap is sensitive to the degree of substitutability between land and unskilled labor. As such, fragmentation can magnify the increase in the skilled-unskilled wage gap resulting from an improvement in the terms of trade. It is also shown that a technological progress in the intermediate goods sector increases the skilled-unskilled wage gap and raises urban unemployment." ("JEL" F1, O1, F11, F12) Copyright (c) 2009 Western Economic Association International.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 48 (2010)
Issue (Month): 4 (October)
Pages: 997-1007

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Handle: RePEc:bla:ecinqu:v:48:y:2010:i:4:p:997-1007

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Citations

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Cited by:
  1. Pan, Lijun & Zhou, Yu, 2013. "International factor mobility, environmental pollution and skilled–unskilled wage inequality in developing countries," Economic Modelling, Elsevier, vol. 33(C), pages 826-831.
  2. Chaudhuri, Sarbajit, 2010. "Economic recession, demand constraint and labour markets in a developing economy," MPRA Paper 27433, University Library of Munich, Germany.
  3. Pi, Jiancai & Zhou, Yu, 2014. "Foreign capital, public infrastructure, and wage inequality in developing countries," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 195-207.
  4. Chaudhuri, Sarbajit & Banerjee, Dibyendu, 2009. "Foreign Capital, National Welfare and Unemployment in a Fair Wage Model," MPRA Paper 18005, University Library of Munich, Germany.
  5. Chaudhuri, Sarbajit & Banerjee, Dibyendu, 2010. "Foreign capital inflow, skilled-unskilled wage inequality and unemployment of unskilled labour in a fair wage model," Economic Modelling, Elsevier, vol. 27(1), pages 477-486, January.
  6. Pi, Jiancai & Zhou, Yu, 2012. "Public infrastructure provision and skilled–unskilled wage inequality in developing countries," Labour Economics, Elsevier, vol. 19(6), pages 881-887.
  7. Beladi, Hamid & Marjit, Sugata & Weiher, Kenneth, 2011. "An analysis of the demand for skill in a growing economy," Economic Modelling, Elsevier, vol. 28(4), pages 1471-1474, July.
  8. Dwibedi, Jayanta & Chaudhuri, Sarbajit, 2011. "Poverty alleviation programs, FDI-led growth and child labour under agricultural dualism," MPRA Paper 29997, University Library of Munich, Germany.

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