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Fair wages, Urban Unemployment and Welfare in a Developing Economy

Author

Listed:
  • Hamid Beladi

    () (university of texas at san antonio)

  • Chi-chur Chao

    () (chinese university of hong kong)

  • Daniel Hollas

    () (university of texas at san antonio)

Abstract

This paper studies the impact of pay fairness on factor income and social welfare in a developing economy with both modern urban and traditional rural sectors. When urban workers become aware of income fairness, they use the expected urban wage and weighted average returns to capitalists as their reference pay. This perception of fairness raises the urban wage and enlarges the wage gap between the urban and rural sectors. The ensuing above market-clearing wage rate causes urban unemployment. Greater wage fairness worsens urban unemployment and lowers social welfare in the economy.

Suggested Citation

  • Hamid Beladi & Chi-chur Chao & Daniel Hollas, 2011. "Fair wages, Urban Unemployment and Welfare in a Developing Economy," Economics Bulletin, AccessEcon, vol. 31(1), pages 273-285.
  • Handle: RePEc:ebl:ecbull:eb-10-00674
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I1-P27.pdf
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    References listed on IDEAS

    as
    1. Anwar, Sajid, 2009. "Wage inequality, welfare and downsizing," Economics Letters, Elsevier, vol. 103(2), pages 75-77, May.
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    3. Chakrabarti, Avik, 2009. "Internal adjustment costs in capital-intensive and labor-intensive industries," Economics Letters, Elsevier, vol. 102(2), pages 76-77, February.
    4. 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.
    5. Gilbert, John & Oladi, Reza, 2009. "Capital specificity, imperfect labor mobility and growth in developing economies," International Review of Economics & Finance, Elsevier, vol. 18(1), pages 113-122, January.
    6. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 543-569.
    7. Panos Hatzipanayotou & Michael S. Michael, 2001. "Public Goods, Tax Policies, and Unemployment in LDCs," Southern Economic Journal, Southern Economic Association, vol. 68(1), pages 107-119, July.
    8. Sugata Marjit & Hamid Beladi & Avik Chakrabarti, 2004. "Trade and Wage Inequality in Developing Countries," Economic Inquiry, Western Economic Association International, vol. 42(2), pages 295-303, April.
    9. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, pages 79-82.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Fair wage; wage inequality; urban unemployment; welfare;

    JEL classification:

    • R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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