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Skills Formation And Wage Inequality In Developing Countries: A Theoretical Analysis

Author

Listed:
  • Sarbajit Chaudhuri

    (Dept. of Economics, Calcutta University)

Abstract

The paper is purported to analyze the impact of skill formation on the skilled-unskilled wage inequality using a few variants of the HOS-type framework. It shows that the effect of skill formation on the wage inequality depends crucially upon the technologies of production of the economy and institutional nature of the markets for unskilled labour. In the extreme case when all unskilled labour markets are distorted any attempt of skill formation unequivocally accentuates the wage gap and may increase the level of unemployment of unskilled labour. These results point out that the empirical evidence as found in Beyer, Rojas and Vergara (1999) and the World Development Report (1995) that skill formation has contributed in reducing the skilled-unskilled wage gap in some developing countries lack solid theoretical bearing. The paper suggests that institutional reform programs, designed for the removal of labour market distortions, should be given high priority along with skill improvement measures to improve the skilled-unskilled wage inequality in the developing countries.

Suggested Citation

  • Sarbajit Chaudhuri, 2005. "Skills Formation And Wage Inequality In Developing Countries: A Theoretical Analysis," Labor and Demography 0511009, EconWPA.
  • Handle: RePEc:wpa:wuwpla:0511009
    Note: Type of Document - pdf; pages: 18
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/lab/papers/0511/0511009.pdf
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    References listed on IDEAS

    as
    1. Jimenez, E. & Lockheed, M.E., 1995. "Public and Private Secondary Education in Developing Countries. A Comparative Study," World Bank - Discussion Papers 309, World Bank.
    2. Osmani, S. R., 1990. "Wage determination in rural labour markets : The theory of implicit co-operation," Journal of Development Economics, Elsevier, vol. 34(1-2), pages 3-23, November.
    3. Schultz, T. Paul, 1988. "Education investments and returns," Handbook of Development Economics,in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 1, chapter 13, pages 543-630 Elsevier.
    4. Bedi, Arjun S. & Garg, Ashish, 2000. "The effectiveness of private versus public schools: the case of Indonesia," Journal of Development Economics, Elsevier, vol. 61(2), pages 463-494, April.
    5. Feenstra, Robert C. & Hanson, Gordon H., 1997. "Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras," Journal of International Economics, Elsevier, vol. 42(3-4), pages 371-393, May.
    6. Beyer, Harald & Rojas, Patricio & Vergara, Rodrigo, 1999. "Trade liberalization and wage inequality," Journal of Development Economics, Elsevier, vol. 59(1), pages 103-123, June.
    7. Harrison, Ann & Hanson, Gordon, 1999. "Who gains from trade reform? Some remaining puzzles," Journal of Development Economics, Elsevier, vol. 59(1), pages 125-154, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Skilled labour; unskilled labour; wage inequality; skill formation; institutional reform programs;

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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