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Terms of Trade Shocks and Minimum wages for Dual Labour Market: A CGE Analysis

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  • Rossana Patrón
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    Abstract

    The aim of this work is to analyse the general equilibrium effects of terms of trade shocks in exportable sectors under particular assumptions about labour market. The model used is based on the Blacke et al. (1995) model of the Mauritian economy, modelled as consisting of three productive sectors: traditional exportable, non traditional exportable and non-traded goods. In this work, two new features are introduced. Firstly, a dual labour market: female and male workers are perfectly mobile across sectors, participating in different proportions in each activity. Secondly, minimum wages, applying to the whole economy, for each type of labour. A series of experiments has been performed to evaluate the general equilibrium effects from favourable and unfavourable shocks in the terms of trade in the exportable sector, paying particular attention to the effects for each type of worker. An import result is that the type-labour intensity is a key to explaining the differences that appear in the effects between the two types of worker when a shock occurs. This work also discusses the alterations in the output-price responses economy wide when a minimum wage is imposed.

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    File URL: http://decon.edu.uy/publica/1997/Doc0397.pdf
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    Bibliographic Info

    Paper provided by Department of Economics - dECON in its series Documentos de Trabajo (working papers) with number 0397.

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    Length: 32 pages
    Date of creation: Sep 1997
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    Handle: RePEc:ude:wpaper:0397

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    1. Milner, Chris & McKay, Andrew, 1996. "Real Exchange Rate Measures of Trade Liberalisation: Some Evidence for Mauritius," Journal of African Economies, Centre for the Study of African Economies (CSAE), Centre for the Study of African Economies (CSAE), vol. 5(1), pages 69-91, March.
    2. Milner, Chris & Wright, Peter, 1998. "Modelling Labour Market Adjustment to Trade Liberalisation in an Industrialising Economy," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 108(447), pages 509-28, March.
    3. Herbert E. Scarf, 1967. "The Approximation of Fixed Points of a Continuous Mapping," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 216R, Cowles Foundation for Research in Economics, Yale University.
    4. Jones, Ronald W, 1971. "Distortions in Factor Markets and the General Equilibrium Model of Production," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 79(3), pages 437-59, May-June.
    5. Brecher, Richard A, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 88(1), pages 98-116, February.
    6. Shoven,John B. & Whalley,John, 1992. "Applying General Equilibrium," Cambridge Books, Cambridge University Press, number 9780521319867, 9.
    7. Dornbusch, Rudiger, 1974. "Tariffs and nontraded goods," Journal of International Economics, Elsevier, vol. 4(2), pages 177-185, May.
    8. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 92(368), pages 825-48, December.
    9. Shoven, John B & Whalley, John, 1984. "Applied General-Equilibrium Models of Taxation and International Trade: An Introduction and Survey," Journal of Economic Literature, American Economic Association, vol. 22(3), pages 1007-51, September.
    10. Neary, J Peter, 1978. "Short-Run Capital Specificity and the Pure Theory of International Trade," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 88(351), pages 488-510, September.
    11. Corden, W M, 1984. "Booming Sector and Dutch Disease Economics: Survey and Consolidation," Oxford Economic Papers, Oxford University Press, vol. 36(3), pages 359-80, November.
    12. P J Forsyth & J A Kay, 1980. "The economic implications of North Sea Oil Revenues," Fiscal Studies, Institute for Fiscal Studies, vol. 1(3), pages 1-28, July.
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