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Optimal Policies in a Dual Economy with Open Unemployment and Surplus Labour


  • Gang, Ira N
  • Gangopadhyay, Shubhashis


This paper considers a dual economy in which the urban sector has open unemployment while the rural sector has surplus labor. The model is a n extension of the Harris-Todaro (1970) framework as developed by Kul B. Bhatia (1979), where full employment is said to exist when open u nemployment and surplus labor are eliminated. The authors characteriz e this full employment equilibrium and the conditions for technical e fficiency and, in addition, show the existence of a unique pair of op timal wage subsidies to each sector. Unlike the earlier uniform wage subsidies, they show that an optimal subsidy is not uniform across se ctors. Copyright 1987 by Royal Economic Society.

Suggested Citation

  • Gang, Ira N & Gangopadhyay, Shubhashis, 1987. "Optimal Policies in a Dual Economy with Open Unemployment and Surplus Labour," Oxford Economic Papers, Oxford University Press, vol. 39(2), pages 378-387, June.
  • Handle: RePEc:oup:oxecpp:v:39:y:1987:i:2:p:378-87

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    References listed on IDEAS

    1. Arnaud Chevalier & Joanne Lindley, 2009. "Overeducation and the skills of UK graduates," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 172(2), pages 307-337.
    2. Daron Acemoglu, 1998. "Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1055-1089.
    3. Andy Dickerson & Francis Green, 2004. "The growth and valuation of computing and other generic skills," Oxford Economic Papers, Oxford University Press, vol. 56(3), pages 371-406, July.
    4. Kerwin Kofi Charles & Ming-Ching Luoh, 2003. "Gender Differences in Completed Schooling," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 559-577, August.
    5. Maarten Goos & Alan Manning, 2007. "Lousy and Lovely Jobs: The Rising Polarization of Work in Britain," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 118-133, February.
    6. Walker, Ian & Zhu, Yu, 2005. "The College Wage Premium, Overeducation, and the Expansion of Higher Education in the UK," IZA Discussion Papers 1627, Institute for the Study of Labor (IZA).
    7. Dolton, Peter & Vignoles, Anna, 2000. "The incidence and effects of overeducation in the U.K. graduate labour market," Economics of Education Review, Elsevier, vol. 19(2), pages 179-198, April.
    8. Francis Green & Steven McIntosh, 2007. "Is there a genuine under-utilization of skills amongst the over-qualified?," Applied Economics, Taylor & Francis Journals, vol. 39(4), pages 427-439.
    9. Gallie, Duncan & White, Michael & Cheng, Yuan & Tomlinson, Mark, 1998. "Restructuring the Employment Relationship," OUP Catalogue, Oxford University Press, number 9780198294412, June.
    10. Arnaud Chevalier, 2003. "Measuring Over-education," Economica, London School of Economics and Political Science, vol. 70(279), pages 509-531, August.
    11. Frenette, Marc, 2004. "The overqualified Canadian graduate: the role of the academic program in the incidence, persistence, and economic returns to overqualification," Economics of Education Review, Elsevier, vol. 23(1), pages 29-45, February.
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    Cited by:

    1. Abdulloev, Ilhom & Gang, Ira N. & Landon-Lane, John, 2011. "Migration as a Substitute for Informal Activities: Evidence from Tajikistan," IZA Discussion Papers 6236, Institute for the Study of Labor (IZA).
    2. Khandker, A. Wahhab & Rashid, Salim, 1995. "Wage subsidy and full-employment in a dual economy with open unemployment and surplus labor," Journal of Development Economics, Elsevier, vol. 48(1), pages 205-223, October.
    3. S.M. Turab Hussain, 2005. "Migration, Policy and Welfare in the Context of Developing Economies : A Simple Extended Family Approach," Development Economics Working Papers 22256, East Asian Bureau of Economic Research.
    4. Sugata Marjit & Biswajit Mandal, 2016. "International Trade, Migration and Unemployment – The Role of Informal Sector," Economics and Politics, Wiley Blackwell, vol. 28(1), pages 8-22, March.
    5. Ira N. Gang & Myeong-Su Yun, 2006. "Immigration Amnesty and Immigrant's Earnings," Departmental Working Papers 200632, Rutgers University, Department of Economics.

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