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Does Public Assistance for Skills Formation Necessarily Improve Wage Inequality in the Future?

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  • Chaudhuri, Sarbajit

Abstract

As per the conventional wisdom there should be provision for public assistance for skills acquirement for improving relative wage inequality in the future. This paper attempts to explore the validity of this traditional perception with the help of a two-sector, specific factor general equilibrium model with endogenous skills formation and provision for public subsidy aimed to encourage acquisition of skills on the part of unskilled labour. The analysis questions the desirability of the policy on the ground that it may not only aggravate inequality in the current period but also does not necessarily improve the wage disparity at a future date.

Suggested Citation

  • Chaudhuri, Sarbajit, 2014. "Does Public Assistance for Skills Formation Necessarily Improve Wage Inequality in the Future?," MPRA Paper 57788, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:57788
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    References listed on IDEAS

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    1. Shigemi Yabuuchi & Sarbajit Chaudhuri, 2009. "Skill Formation, Capital Adjustment Cost And Wage Inequality," Review of Urban & Regional Development Studies, Wiley Blackwell, vol. 21(1), pages 2-13, March.
    2. Hamid Beladi & Sarbajit Chaudhuri & Shigemi Yabuuchi, 2008. "Can International Factor Mobility Reduce Wage Inequality in a Dual Economy?," Review of International Economics, Wiley Blackwell, vol. 16(5), pages 893-903, November.
    3. Feenstra, Robert C. & Hanson, Gordon H., 1997. "Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras," Journal of International Economics, Elsevier, vol. 42(3-4), pages 371-393, May.
    4. Beyer, Harald & Rojas, Patricio & Vergara, Rodrigo, 1999. "Trade liberalization and wage inequality," Journal of Development Economics, Elsevier, vol. 59(1), pages 103-123, June.
    5. Harrison, Ann & Hanson, Gordon, 1999. "Who gains from trade reform? Some remaining puzzles," Journal of Development Economics, Elsevier, vol. 59(1), pages 125-154, June.
    6. Chaudhuri, Sarbajit, 2008. "Wage inequality in a dual economy and international mobility of factors: Do factor intensities always matter?," Economic Modelling, Elsevier, vol. 25(6), pages 1155-1164, November.
    7. Dwibedi, Jayanta Kumar & Chaudhuri, Sarbajit, 2010. "Foreign capital, return to education and child labour," International Review of Economics & Finance, Elsevier, vol. 19(2), pages 278-286, April.
    8. 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.
    9. Marjit, Sugata & Kar, Saibal, 2005. "Emigration and wage inequality," Economics Letters, Elsevier, vol. 88(1), pages 141-145, July.
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    11. Wood, Adrian, 1997. "Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom," The World Bank Economic Review, World Bank, vol. 11(1), pages 33-57, January.
    12. Chaudhuri, Sarbajit, 2004. "International Migration of Skilled and Unskilled Labour, Welfare and Skilled-unskilled Wage Inequality: a Simple Model," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 19, pages 726-741.
    13. Jafarey, Saqib & Lahiri, Sajal, 2002. "Will trade sanctions reduce child labour?: The role of credit markets," Journal of Development Economics, Elsevier, vol. 68(1), pages 137-156, June.
    14. Chaudhuri, Sarbajit & Banerjee, Dibyendu, 2008. "Fair Wage Hypothesis, International Factor Mobility and Skilled-Unskilled Wage Inequality in a Developing Economy," MPRA Paper 9303, University Library of Munich, Germany.
    15. Saqib Jafarey & Sajal Lahiri, 2005. "Food for education versus school quality: a comparison of policy options to reduce child labour," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(2), pages 394-419, May.
    16. Chaudhuri, Sarbajit & Yabuuchi, Shigemi, 2007. "Economic liberalization and wage inequality in the presence of labour market imperfection," International Review of Economics & Finance, Elsevier, vol. 16(4), pages 592-603.
    17. Chaudhuri, Sarbajit, 2010. "Foreign Direct Investment, Child Labour and Unemployment of Unskilled Labour in a Dual Economy," MPRA Paper 20610, University Library of Munich, Germany.
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    Cited by:

    1. Anindya Biswas & Sarbajit Chaudhuri, 2018. "Skill Formation, Public Expenditure on Education and Wage Inequality: Theory and Evidence," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 16(2), pages 553-571, June.

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    More about this item

    Keywords

    Skills Formation; Wage Inequality; Skilled Labour; Unskilled Labour; Education Subsidy; Intertemporal Analysis; 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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