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Skills Distribution, Migration and Wage Differences in Pure Service-Exchange Economy

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  • Gupta, Abhay

Abstract

This paper considers an economy with skilled agents exchanging their services. Using Cobb-Douglas preferences, the paper shows that there exists an optimal (average welfare maximizing) skills' distribution. This optimal distribution is independent of productivity and is welfare equalizing. If the skill-distribution is not optimal, then some agents are better-off than others. In such a scenario, migration in some sectors is average-welfare improving while inviting skilled-agents in others reduces average welfare. "Productivity increase of worse-o sector" without changing the overall skills' composition of economy increases the wage gap.

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File URL: http://mpra.ub.uni-muenchen.de/9000/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9000.

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Date of creation: Jun 2007
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Handle: RePEc:pra:mprapa:9000

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