Fragmentation in Production, Vertical Integration and Wage Inequality: A Theoretical Note
AbstractDeveloping a three-sector and four-factor general equilibrium model, this paper offers an explanation of wage inequality in a vertically fragmented production structure typical of off-shore outsourcing to developing countries like China or India. The model characterizes a typical developing economy where intermediate good is produced using capital and local low-skilled worker, traditional sector uses unskilled worker to produce agricultural products and skilled worker works in tandem with intermediates to produce final goods for export. The model furnishes that wage dispersion could be explained theoretically in this specific-factor general equilibrium structure where factor returns are endogenously determined within a production structure with middle products. In particular, scenario analysis shows that increase in relative price of final good aggravates wage inequality, whereas opposite happens when price of intermediates and import-competing sector inflates. Skilling the unskilled and protecting the sector intensive in low-skilled could attenuate the adverse impact.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 47455.
Date of creation: 15 Dec 2012
Date of revision:
Publication status: Published in Modern Economy 3.6(2012): pp. 958-964
Wage Inequality; Fragmentation; Vertical Specialization; Specific Factor;
Find related papers by JEL classification:
- D5 - Microeconomics - - General Equilibrium and Disequilibrium
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
- F10 - International Economics - - Trade - - - General
- F11 - International Economics - - Trade - - - Neoclassical Models of Trade
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-16 (All new papers)
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