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Technological Progress with Segmented Factor Markets and Welfare Implications for the Urban Poor

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  • Soumyatanu Mukherjee
  • Sameen Zafar

Abstract

Motivated by a set of stylised facts based on provincial data for India, this paper investigates the incidence of urban poverty by modelling the impact of technological progress in the formal sectors of the economy on the urban informal wage in a four-sector general equilibrium framework with labour and capital market distortions. Uniform technological progress only in the capital intensive segment of the formal sectors affects the urban informal workers adversely, whereas productivity improvement only in the less capital intensive sector benefits them. The sensitivity analysis demonstrates that when both formal sectors undergo uniform technological progress at the same rate, informal wage may improve if the vertically integrated sector is less capital intensive (as capital flows to the informal sectors). This helps in understanding trends in urban poverty given the strong association between the urban informal wage and degree of urban poverty.

Suggested Citation

  • Soumyatanu Mukherjee & Sameen Zafar, 2015. "Technological Progress with Segmented Factor Markets and Welfare Implications for the Urban Poor," Discussion Papers 2015-02, University of Nottingham, CREDIT.
  • Handle: RePEc:not:notcre:15/02
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    References listed on IDEAS

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    More about this item

    Keywords

    Poverty; Technological Progress; Informal Wage; General Equilibrium;

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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