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Economic Recession, Informal Sector and Skilled–Unskilled Wage Disparity in a Developing Economy: A Trade-Theoretical Analysis

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  • Sushobhan Mahata
  • Rohan Kanti Khan
  • Ranjanendra Narayan Nag

Abstract

The paper analyses some selective aspects of economic crises, namely skilled-sector recession, reversed international migration of labour and decline in foreign capital inflow on the informal sector employment and wage rate in developing economies and seeks to explain the non-monotonic effect on the informal sector both across nations and within nation across sectors. In so doing, we develop three-sector General Equilibrium models under two different scenarios which may apply to a large class of emerging market economies. In the first model, we have a traded informal export sector, and the role of the non-traded informal sector in the presence of credit market imperfection is analysed in the second model. Skilled-sector recession produces a favourable (unfavourable) effect on the workers employed in the traded informal sector (non-traded informal sector) due to an induced complementary relationship between the high-skilled export sector and the informal sector. A fall in emigration level of skilled or unskilled worker and a decline in foreign capital inflow hurt the workers in the informal traded sector, while the workers in the non-traded informal sector gain. The results of the paper reflect contradictions of an emerging economy, which is essentially hybrid economics in which capitalist nucleus has a conditional-conditioning relationship with an archaic structure. JEL Codes: F13, J31

Suggested Citation

  • Sushobhan Mahata & Rohan Kanti Khan & Ranjanendra Narayan Nag, 2020. "Economic Recession, Informal Sector and Skilled–Unskilled Wage Disparity in a Developing Economy: A Trade-Theoretical Analysis," Foreign Trade Review, , vol. 55(2), pages 168-188, May.
  • Handle: RePEc:sae:fortra:v:55:y:2020:i:2:p:168-188
    DOI: 10.1177/0015732519894132
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    References listed on IDEAS

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    More about this item

    Keywords

    Credit market imperfection; informal sector; economic recession; wage inequality;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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