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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
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    References listed on IDEAS

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    Cited by:

    1. Yasuyuki Sugiyama & Muneyuki Saito, 2016. "Environmental Goods and Measures for Their Promotion: An Analysis Using a Fair Wage Model," Pacific Economic Review, Wiley Blackwell, vol. 21(5), pages 581-602, December.

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    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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