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

  • Sarbajit Chaudhuri

    (Dept. of Economics, Calcutta University)

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.

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Paper provided by EconWPA in its series Labor and Demography with number 0511009.

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Length: 18 pages
Date of creation: 09 Nov 2005
Date of revision:
Handle: RePEc:wpa:wuwpla:0511009
Note: Type of Document - pdf; pages: 18
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  1. Beyer, Harald & Rojas, Patricio & Vergara, Rodrigo, 1999. "Trade liberalization and wage inequality," Journal of Development Economics, Elsevier, vol. 59(1), pages 103-123, June.
  2. 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.
  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. 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.
  5. 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.
  6. Jimenez, E. & Lockheed, M.E., 1995. "Public and Private Secondary Education in Developing Countries. A Comparative Study," World Bank - Discussion Papers 309, World Bank.
  7. Robert C. Feenstra & Gordon H. Hanson, 1995. "Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras," NBER Working Papers 5122, National Bureau of Economic Research, Inc.
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