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

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  • 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
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Fair wage hypothesis; skilled labour; unskilled labour; wage inequality; Foreign capital; unemployment;
    All these keywords.

    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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