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Rural‐Urban Wage Differentials, Unemployment, and Efficiency Wages: An Open Economy Policy Analysis

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  • Judith C. Chin

Abstract

This paper analyzes the desirability of various policies designed to counteract the distorting nature of an equilibrium rural‐urban wage differential in a small, open, two‐sector economy with urban unemployment. A dual labor market model with an efficiency wage in the urban sector and urban unemployment is analyzed for the distributional and national output effects of an urban wage subsidy, an urban production subsidy, and a tariff on the urban good. While a small subsidy or tariff raises the value of national output, redistribution effects may limit the viability of intervention. However, subsidies can also be Pareto improving policies.

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  • Judith C. Chin, 1998. "Rural‐Urban Wage Differentials, Unemployment, and Efficiency Wages: An Open Economy Policy Analysis," Southern Economic Journal, John Wiley & Sons, vol. 65(2), pages 294-307, October.
    • Handle: RePEc:wly:soecon:v:65:y:1998:i:2:p:294-307
    DOI: 10.1002/j.2325-8012.1998.tb00151.x
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    References listed on IDEAS

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    Cited by:

    1. Lei Wen & Haiwen Zhou, 2023. "The choice of technology in economic development," Australian Economic Papers, Wiley Blackwell, vol. 62(4), pages 747-763, December.

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