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

Author

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  • 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, University Library of Munich, Germany.
    • 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

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    7. 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.
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    Cited by:

    1. Ujjaini Mukhopadhyay, 2017. "Foreign Capital Inflow and Skill Formation: Effects on Skilled-unskilled Wage Inequality," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 42(4), pages 119-136, December.

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    Keywords

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    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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