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Fair Wage Hypothesis, International Factor Mobility and Skilled-Unskilled Wage Inequality in a Developing Economy

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Author Info
Chaudhuri, Sarbajit
Banerjee, Dibyendu

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Abstract

Agell and Lundborg (1995, Economica) have accommodated the fair wage hypothesis (FWH) in an otherwise 2×2 Hechscher-Ohlin-Samuelson model for examining the robustness of certain standard trade theorems. The present paper proposes to introduce the FWH in a three sector general equilibrium model with two types of labour: skilled and unskilled. Skilled labour is specific to the high-skill sector and receives the efficiency wage while unskilled labour in the other two sectors receives either the competitive wage or the high unionized wage. Using such a framework the consequences of international mobility of factors of production on the skilled-unskilled wage inequality and unemployment of skilled labour in a developing economy have been analyzed. Both foreign capital inflows and emigration of skilled labour improve the skilled-unskilled wage inequality under reasonable condition. Particularly, the result relating to emigration of skilled labour is counterintuitive.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9303.

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Date of creation: 20 Jun 2008
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Handle: RePEc:pra:mprapa:9303

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Related research
Keywords: Fair wage hypothesis; skilled labour; unskilled labour; wage inequality; Foreign capital; unemployment;

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Find related papers by JEL classification:
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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  1. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May. [Downloadable!] (restricted)
  2. Geeta Kingdon & John Knight, 2004. "Unemployment in South Africa: the nature of the beast," Labor and Demography 0409003, EconWPA. [Downloadable!]
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  3. Marjit, Sugata & Kar, Saibal, 2005. "Emigration and wage inequality," Economics Letters, Elsevier, vol. 88(1), pages 141-145, July. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
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  5. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June. [Downloadable!] (restricted)
  6. Yabuuchi, Shigemi & Chaudhuri, Sarbajit, 2007. "International migration of labour and skilled-unskilled wage inequality in a developing economy," Economic Modelling, Elsevier, vol. 24(1), pages 128-137, January. [Downloadable!] (restricted)
  7. Sugata Marjit & Hamid Beladi & Avik Chakrabarti, 2004. "Trade and Wage Inequality in Developing Countries," Economic Inquiry, Oxford University Press, vol. 42(2), pages 295-303, April. [Downloadable!] (restricted)
  8. Feenstra, R.C. & Hanson, G.H., 1995. "Foreign Investment, Outsourcing and Relative Wages," Papers 95-14, California Davis - Institute of Governmental Affairs.
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  9. Quibria, M. G., 1988. "A note on international migration, non-traded goods and economic welfare in the source country," Journal of Development Economics, Elsevier, vol. 28(3), pages 377-387, May. [Downloadable!] (restricted)
  10. Pieter Serneels, 2007. "The Nature of Unemployment among Young Men in Urban Ethiopia," Review of Development Economics, Blackwell Publishing, vol. 11(1), pages 170-186, 02. [Downloadable!] (restricted)
  11. Beladi, Hamid & Chaudhuri, Sarbajit & Yabuuchi, Shigemi, 2007. "Can International Factor Mobility lessen Wage Inequality in a Dual Economy?," MPRA Paper 2641, University Library of Munich, Germany. [Downloadable!]
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