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Institutional quality and skilled–unskilled wage inequality

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  • Pi, Jiancai
  • Zhou, Yu

Abstract

This paper establishes two-sector general equilibrium models in the presence of unproductive activities to investigate how an improvement of the institutional quality influences the skilled–unskilled wage inequality. We find that an improvement of the institutional quality will affect the interest rate, and then the interest rate combining with the capital intensity will generate an impact on the skilled–unskilled wage inequality. Specifically, both the interest rate and comparisons of the capital–labor relative distributive shares between two sectors play an important role in determining the skilled–unskilled wage gap in an economy featured with unproductive activities. The above results are robust even when we extend the basic theoretical model in several different ways.

Suggested Citation

  • Pi, Jiancai & Zhou, Yu, 2013. "Institutional quality and skilled–unskilled wage inequality," Economic Modelling, Elsevier, vol. 35(C), pages 356-363.
    • Handle: RePEc:eee:ecmode:v:35:y:2013:i:c:p:356-363
    DOI: 10.1016/j.econmod.2013.07.029
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    More about this item

    Keywords

    Institutional quality; Skilled–unskilled wage inequality; General equilibrium model;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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