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Fair wages, Urban Unemployment and Welfare in a Developing Economy

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Author Info

  • Hamid Beladi

    ()
    (university of texas at san antonio)

  • Chi-chur Chao

    ()
    (chinese university of hong kong)

  • Daniel Hollas

    ()
    (university of texas at san antonio)

Abstract

This paper studies the impact of pay fairness on factor income and social welfare in a developing economy with both modern urban and traditional rural sectors. When urban workers become aware of income fairness, they use the expected urban wage and weighted average returns to capitalists as their reference pay. This perception of fairness raises the urban wage and enlarges the wage gap between the urban and rural sectors. The ensuing above market-clearing wage rate causes urban unemployment. Greater wage fairness worsens urban unemployment and lowers social welfare in the economy.

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File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I1-P27.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 31 (2011)
Issue (Month): 1 ()
Pages: 273-285

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Handle: RePEc:ebl:ecbull:eb-10-00674

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Related research

Keywords: Fair wage; wage inequality; urban unemployment; welfare;

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References

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  1. Reza Oladi, 2004. "Strategic quotas on foreign investment and migration," Economic Theory, Springer, vol. 24(2), pages 289-306, August.
  2. Gilbert, John & Oladi, Reza, 2009. "Capital specificity, imperfect labor mobility and growth in developing economies," International Review of Economics & Finance, Elsevier, vol. 18(1), pages 113-122, January.
  3. Panos Hatzipanayotou & Michael S. Michael, 2001. "Public Goods, Tax Policies, and Unemployment in LDCs," Southern Economic Journal, Southern Economic Association, vol. 68(1), pages 107-119, July.
  4. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  5. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
  6. Kar, Saibal & Beladi, Hamid, 2004. "Skill formation and international migration: welfare perspective of developing countries," Japan and the World Economy, Elsevier, vol. 16(1), pages 35-54, January.
  7. Sugata Marjit & Hamid Beladi & Avik Chakrabarti, 2004. "Trade and Wage Inequality in Developing Countries," Economic Inquiry, Western Economic Association International, vol. 42(2), pages 295-303, April.
  8. Chakrabarti, Avik, 2009. "Internal adjustment costs in capital-intensive and labor-intensive industries," Economics Letters, Elsevier, vol. 102(2), pages 76-77, February.
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