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How growing asset inequality affects developing economies

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  • Beladi, Hamid
  • Chao, Chi-Chur
  • Hollas, Daniel

Abstract

Using a dual structure depicting a developing economy, this paper shows that an increase in asset inequality can lead to wage inequality between skilled and unskilled labor. In addition, increasing asset inequality raises the luxury goods price and hence the unemployment ratio. These effects lower the social welfare of the economy. To mitigate the adverse effect on wage inequality by asset inequality, a policy option to increase the urban minimum wage rate can be considered. However, this wage policy worsens social welfare by generating higher urban unemployment in the economy.

Suggested Citation

  • Beladi, Hamid & Chao, Chi-Chur & Hollas, Daniel, 2013. "How growing asset inequality affects developing economies," Journal of Economics and Business, Elsevier, vol. 68(C), pages 43-51.
    • Handle: RePEc:eee:jebusi:v:68:y:2013:i:c:p:43-51
    DOI: 10.1016/j.jeconbus.2013.03.004
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    More about this item

    Keywords

    Asset inequality; Wage inequality; Social welfare;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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