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Can public subsidy on education necessarily improve wage inequality?

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  • Chaudhuri, Sarbajit
  • Ghosh, Arnab
  • Banerjee, Dibyendu

Abstract

The present paper develops a two-sector, specific factor general equilibrium framework for analyzing endogenous skill formation in a dynamic set-up and examining the consequence of a public subsidy policy on education on the skilled-unskilled wage inequality in a small open economy. It shows that given the technologies of production the policy produces a favorable impact on the wage inequality only in one of the two periods while producing an adverse consequence in the other. If the wage income inequality improves (deteriorates) in period 1 it worsens (ameliorates) in period 2 under the same sufficient conditions. The results are found to be more or less valid even in the presence of unemployment of unskilled labour. Finally, some composite policy recommendations have been suggested so that the relative wages always move in favor of the poorer section of the working population.

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  • Chaudhuri, Sarbajit & Ghosh, Arnab & Banerjee, Dibyendu, 2018. "Can public subsidy on education necessarily improve wage inequality?," International Review of Economics & Finance, Elsevier, vol. 54(C), pages 165-177.
    • Handle: RePEc:eee:reveco:v:54:y:2018:i:c:p:165-177
    DOI: 10.1016/j.iref.2017.08.005
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    Cited by:

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    6. Pi, Jiancai & Zhang, Pengqing, 2018. "Structural change and wage inequality," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 699-707.
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    8. Jiancai Pi & Kaiqi Zhang & Xiangyu Huang, 2023. "Financial globalization and wage inequality," Scottish Journal of Political Economy, Scottish Economic Society, vol. 70(2), pages 144-157, May.
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    More about this item

    Keywords

    Skill formation; Education subsidy; Skilled labour; Unskilled labour; Wage inequality; Urban unemployment; Composite policy; General equilibrium;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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