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Wage inequality in a dual economy and international mobility of factors: Do factor intensities always matter?

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  • Chaudhuri, Sarbajit

Abstract

The paper develops a three-sector specific factor model with Harris-Todaro type unemployment to examine the consequences of international factor mobility on the skilled-unskilled wage inequality and urban unemployment of unskilled labour in a small open dual economy. The theoretical analysis shows that the consequences of international factor mobility on wage inequality may not necessarily depend on the difference in the factor intensity condition. Only when the unskilled wage in the low-skill urban sector is positively related to the rural wage, factor intensity conditions do matter. An emigration of skilled labour or an inflow of foreign capital may move the wages in favour of the unskilled labour and lower the magnitude of urban unemployment only if the low-skill urban sector is capital-intensive (in a special sense). But, an immigration of unskilled labour produces exactly the opposite effects. The paper argues that provided the government undertakes supplementary measures to curb trade union power and prevent illegal immigration of unskilled labour, abundant inflows of foreign capital might be a solution to both deteriorating wage inequality and increasing unemployment of unskilled labour in the liberalized regime.
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  • Chaudhuri, Sarbajit, 2008. "Wage inequality in a dual economy and international mobility of factors: Do factor intensities always matter?," Economic Modelling, Elsevier, vol. 25(6), pages 1155-1164, November.
  • Handle: RePEc:eee:ecmode:v:25:y:2008:i:6:p:1155-1164
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    Cited by:

    1. Gupta Manash Ranjan & Dutta Priya Brata, 2014. "Skilled-Unskilled Wage Inequality, Growth of Skilled Labour and Development Policies," Journal of Globalization and Development, De Gruyter, vol. 5(1), pages 1-26, June.
    2. Anwar, Sajid & Rice, John, 2009. "Labour mobility and wage inequality in the presence of endogenous foreign investment," Economic Modelling, Elsevier, vol. 26(6), pages 1135-1139, November.
    3. Gupta, Manash Ranjan & Dutta, Priya Brata, 2010. "Skilled-unskilled wage inequality, nontraded good and endogenous supply of skilled labour: A theoretical analysis," Economic Modelling, Elsevier, vol. 27(5), pages 923-934, September.
    4. Anwar, Sajid & Sun, Sizhong, 2012. "Trade liberalisation, market competition and wage inequality in China's manufacturing sector," Economic Modelling, Elsevier, vol. 29(4), pages 1268-1277.
    5. Pi, Jiancai & Zhou, Yu, 2012. "Public infrastructure provision and skilled–unskilled wage inequality in developing countries," Labour Economics, Elsevier, vol. 19(6), pages 881-887.
    6. repec:eee:reveco:v:54:y:2018:i:c:p:165-177 is not listed on IDEAS
    7. Gupta, Manash Ranjan & Dutta, Priya Brata, 2011. "Skilled-unskilled wage inequality and unemployment: A general equilibrium analysis," Economic Modelling, Elsevier, vol. 28(4), pages 1977-1983, July.
    8. Gupta, Manash Ranjan & Dutta, Priya Brata, 2012. "Skilled–unskilled wage inequality, product variety, public input and increasing returns: A static general equilibrium analysis," Economic Modelling, Elsevier, vol. 29(2), pages 502-513.
    9. repec:eee:reveco:v:49:y:2017:i:c:p:582-595 is not listed on IDEAS
    10. Anwar, Sajid & Sun, Sizhong & Valadkhani, Abbas, 2013. "International outsourcing of skill intensive tasks and wage inequality," Economic Modelling, Elsevier, vol. 31(C), pages 590-597.
    11. Pi, Jiancai & Zhang, Pengqing, 2016. "Hukou system reforms and skilled-unskilled wage inequality in China," China Economic Review, Elsevier, vol. 41(C), pages 90-103.
    12. Dwibedi, Jayanta & Chaudhuri, Sarbajit, 2011. "Poverty alleviation programs, FDI-led growth and child labour under agricultural dualism," MPRA Paper 29997, University Library of Munich, Germany.
    13. Pi Jiancai & Zhou Yu, 2015. "Rural Property Rights, Migration, and Welfare in Developing Countries," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(3), pages 997-1029, July.
    14. Zhang, Jingjing, 2012. "Inflow of labour, producer services and wage inequality," Economics Letters, Elsevier, vol. 117(3), pages 600-603.
    15. Pi Jiancai & Zhou Yu, 2015. "International Factor Mobility, Production Cost Components, and Wage Inequality," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(2), pages 503-522, April.
    16. repec:bla:econpa:v:36:y:2017:i:1:p:86-101 is not listed on IDEAS
    17. Pi, Jiancai & Zhou, Yu & Yin, Jun, 2013. "International factor mobility, monopolistic competition, and wage inequality," Economic Modelling, Elsevier, vol. 33(C), pages 326-332.
    18. Gupta, Manash Ranjan & Dutta, Priya Brata, 2010. "Skilled-unskilled wage inequality: A general equilibrium analysis," Research in Economics, Elsevier, vol. 64(4), pages 247-263, December.
    19. Jiancai Pi & Pengqing Zhang, 2017. "Social conflict and wage inequality," Journal of Economics, Springer, vol. 121(1), pages 29-49, May.
    20. Chaudhuri, Sarbajit, 2010. "Economic recession, demand constraint and labour markets in a developing economy," MPRA Paper 27433, University Library of Munich, Germany.
    21. Pi, Jiancai & Zhang, Pengqing, 2017. "Foreign capital, pollution control, and wage inequality in developing countries," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 280-288.
    22. Pan, Lijun & Zhou, Yu, 2013. "International factor mobility, environmental pollution and skilled–unskilled wage inequality in developing countries," Economic Modelling, Elsevier, vol. 33(C), pages 826-831.
    23. Li, Xiaochun & Zhou, Yu, 2013. "An economic analysis of remittance of unskilled migration on skilled–unskilled wage inequality in labor host region," Economic Modelling, Elsevier, vol. 33(C), pages 428-432.
    24. Chaudhuri, Sarbajit, 2014. "Does Public Assistance for Skills Formation Necessarily Improve Wage Inequality in the Future?," MPRA Paper 57788, University Library of Munich, Germany.
    25. Chaudhuri, Sarbajit, 2014. "Public Subsidy on Education, Welfare, and Wage Inequality in a Small Open Developed Economy: A Two-period Analysis," MPRA Paper 60330, University Library of Munich, Germany.

    More about this item

    Keywords

    Skilled labour Unskilled labour Foreign capital Wage inequality Harris-Todaro type unemployment Emigration (immigration) of labour Unionized wage;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration

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