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Skilled-unskilled wage inequality and unemployment: A general equilibrium analysis

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  • Gupta, Manash Ranjan
  • Dutta, Priya Brata

Abstract

The paper develops a static three sector competitive general equilibrium model of a small open economy in which skilled labor is mobile between a traded good sector and the non-traded good sector and unskilled labor is specific to another traded good sector. Capital is perfectly mobile among all these three sectors. We introduce involuntary unemployment equilibrium in both the labor markets and explain unemployment using efficiency wage hypothesis. We examine the effects of change in different factor endowments and prices of traded goods on the unemployment rates and on the skilled-unskilled relative wage. Also, we introduce Gini-Coefficient of wage income distribution as a measure of wage income inequality; and show that a comparative static effect may force the skilled-unskilled relative wage and the Gini-Coefficient of wage income distribution to move in opposite directions in the presence of unemployment.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 28 (2011)
Issue (Month): 4 (July)
Pages: 1977-1983

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Handle: RePEc:eee:ecmode:v:28:y:2011:i:4:p:1977-1983

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Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: Wage inequality Gini-Coefficient Skilled labor Unskilled labor Non-traded good General equilibrium Unemployment Efficiency wage hypothesis;

References

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Cited by:
  1. Sun, Ruoyan, 2013. "Kinetics of jobs in multi-link cities with migration-driven aggregation process," Economic Modelling, Elsevier, vol. 30(C), pages 36-41.

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