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Skills Distribution, Migration and Wage Differences in Pure Service-Exchange Economy


  • Gupta, Abhay


This paper considers an economy with skilled agents exchanging their services. Using Cobb-Douglas preferences, the paper shows that there exists an optimal (average welfare maximizing) skills' distribution. This optimal distribution is independent of productivity and is welfare equalizing. If the skill-distribution is not optimal, then some agents are better-off than others. In such a scenario, migration in some sectors is average-welfare improving while inviting skilled-agents in others reduces average welfare. "Productivity increase of worse-o sector" without changing the overall skills' composition of economy increases the wage gap.

Suggested Citation

  • Gupta, Abhay, 2007. "Skills Distribution, Migration and Wage Differences in Pure Service-Exchange Economy," MPRA Paper 9000, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:9000

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    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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