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Fair Wage Hypothesis, International Factor Mobility and Skilled-Unskilled Wage Inequality in a Developing Economy

Author

Listed:
  • Chaudhuri, Sarbajit
  • Banerjee, Dibyendu

Abstract

Agell and Lundborg (1995, Economica) have accommodated the fair wage hypothesis (FWH) in an otherwise 2×2 Hechscher-Ohlin-Samuelson model for examining the robustness of certain standard trade theorems. The present paper proposes to introduce the FWH in a three sector general equilibrium model with two types of labour: skilled and unskilled. Skilled labour is specific to the high-skill sector and receives the efficiency wage while unskilled labour in the other two sectors receives either the competitive wage or the high unionized wage. Using such a framework the consequences of international mobility of factors of production on the skilled-unskilled wage inequality and unemployment of skilled labour in a developing economy have been analyzed. Both foreign capital inflows and emigration of skilled labour improve the skilled-unskilled wage inequality under reasonable condition. Particularly, the result relating to emigration of skilled labour is counterintuitive.

Suggested Citation

  • Chaudhuri, Sarbajit & Banerjee, Dibyendu, 2008. "Fair Wage Hypothesis, International Factor Mobility and Skilled-Unskilled Wage Inequality in a Developing Economy," MPRA Paper 9303, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:9303
    as

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    File URL: https://mpra.ub.uni-muenchen.de/9303/1/MPRA_paper_9303.pdf
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    References listed on IDEAS

    as
    1. George A. Akerlof & Janet L. Yellen, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 255-283.
    2. Hamid Beladi & Sarbajit Chaudhuri & Shigemi Yabuuchi, 2006. "Can international factor mobility lessen wage inequality in a dual economy?," Working Papers 0022, College of Business, University of Texas at San Antonio.
    3. Kingdon, Geeta Gandhi & Knight, John, 2004. "Unemployment in South Africa: The Nature of the Beast," World Development, Elsevier, vol. 32(3), pages 391-408, March.
    4. Chaudhuri, Sarbajit & Yabuuchi, Shigemi, 2007. "Economic liberalization and wage inequality in the presence of labour market imperfection," International Review of Economics & Finance, Elsevier, vol. 16(4), pages 592-603.
    5. Yabuuchi, Shigemi & Chaudhuri, Sarbajit, 2007. "International migration of labour and skilled-unskilled wage inequality in a developing economy," Economic Modelling, Elsevier, vol. 24(1), pages 128-137, January.
    6. Feenstra, R.C. & Hanson, G.H., 1995. "Foreign Investment, Outsourcing and Relative Wages," Papers 95-14, California Davis - Institute of Governmental Affairs.
    7. Pieter Serneels, 2007. "The Nature of Unemployment among Young Men in Urban Ethiopia," Review of Development Economics, Wiley Blackwell, vol. 11(1), pages 170-186, February.
    8. Marjit, Sugata & Kar, Saibal, 2005. "Emigration and wage inequality," Economics Letters, Elsevier, vol. 88(1), pages 141-145, July.
    9. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
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    11. Quibria, M. G., 1988. "A note on international migration, non-traded goods and economic welfare in the source country," Journal of Development Economics, Elsevier, vol. 28(3), pages 377-387, May.
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    More about this item

    Keywords

    Fair wage hypothesis; skilled labour; unskilled labour; wage inequality; Foreign capital; unemployment;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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