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Fair Wage Hypothesis, Foreign Capital Inflow and Skilled-unskilled Wage Inequality in the Presence of Agricultural Dualism

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  • Chaudhuri, Sarbajit

Abstract

The paper develops a four-sector general equilibrium model where the fair wage hypothesis is valid and there is agricultural dualism for analyzing the consequence of an inflow of foreign capital on the skilled-unskilled wage inequality and the unemployment of skilled labour in a developing economy. The unskilled workers are fully employed but there is imperfection in the market for unskilled labour. On the contrary, the skilled wage is set by the firms by minimizing the unit cost of skilled labour and their efficiency depends on the relative income distribution and the unemployment rate. The analysis finds that an inflow of foreign capital worsens the relative wage inequality but lowers the unemployment of skilled labour. It provides an alternative theoretical foundation to the empirical finding that inflows of foreign capital might have produced unfavourable effect on the wage inequality in the developing countries during the liberalized regime by increasing the relative demand for skilled labour.

Suggested Citation

  • Chaudhuri, Sarbajit, 2008. "Fair Wage Hypothesis, Foreign Capital Inflow and Skilled-unskilled Wage Inequality in the Presence of Agricultural Dualism," MPRA Paper 9394, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:9394
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    References listed on IDEAS

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    9. Hamid Beladi & Sarbajit Chaudhuri & Shigemi Yabuuchi, 2006. "Can international factor mobility lessen wage inequality in a dual economy?," Working Papers 0022, College of Business, University of Texas at San Antonio.
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    13. 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.
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    Cited by:

    1. Chaudhuri, Sarbajit, 2010. "Economic recession, demand constraint and labour markets in a developing economy," MPRA Paper 27433, University Library of Munich, Germany.
    2. Dwibedi, Jayanta & Chaudhuri, Sarbajit, 2011. "Poverty alleviation programs, FDI-led growth and child labour under agricultural dualism," MPRA Paper 29997, University Library of Munich, Germany.

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    More about this item

    Keywords

    Fair wage hypothesis; agricultural dualism; skilled labour; unskilled labour; relative 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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