Optimal Policies in a Dual Economy with Open Unemployment and Surplus Labour
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.
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Volume (Year): 39 (1987)
Issue (Month): 2 (June)
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