Wage Inequality and Unemployment in the Presence of Imported Intermediate Goods: A Theoretical Analysis

2021 ◽  
pp. 001573252098689
Author(s):  
Priya Brata Dutta ◽  
Nirjhar Ghosh
Keyword(s):  
Wage Inequality ◽  
Open Economy ◽  
Service Sector ◽  
Agricultural Sector ◽  
Small Open Economy ◽  
Capital Inflow ◽  
Intermediate Goods ◽  
Jel Codes ◽  
Unskilled Labour ◽  
Critical Policy

This article develops a static three-sector and five-factor competitive general equilibrium model of a small open economy: sector 1 is the rural agricultural sector, which produces products using informal or unorganised unskilled labour and land as inputs; sector 2 is the urban manufacturing, final-goods-producing sector that produces products with the help of unskilled labour, who get unionised wages, and capital; and sector 3 is the service sector, which uses skilled labour with formal wages, capital and sophisticated hi-technology-intensive imported intermediate goods produced abroad as inputs. We show that an exogenous increase in capital inflow or an increase in tariff on imported intermediate input reduces the skilled–unskilled wage inequality and lowers unemployment as long as the return to capital is unaltered and output adjustments absorb the entire shock of the two policies. Such capital inflow increases rural wage and reduces unemployment via the Harris Todaro mechanism but interestingly does not allow the skilled wage to increase. Thus, two critical policy targets can be accommodated at the same time. JEL Codes: F13, J31, J46

Globalisation, crime and wage inequality: a theoretical analysis

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Manash Ranjan Gupta
Keyword(s):  
General Equilibrium ◽  
Wage Inequality ◽  
Open Economy ◽  
Small Open Economy ◽  
The Other ◽  
Skilled Workers ◽  
Production Sector ◽  
Content Type ◽  
Unskilled Labour ◽  
Rental Rate

Purpose This study aims to focus on the effects of economic globalisation programme on the problems of criminal activities and on the degree of skilled–unskilled wage inequality. Design/methodology/approach A competitive general equilibrium model of a small open economy is developed. Unskilled labour moves from the production sector to the criminal sector. Those who join the criminal sector snatch a part of capitalists’ income and skilled workers’ income to finance their consumption and face positive probability of being caught and punished. The size of the criminal sector and the rental rate on capital are simultaneously determined in the short-run equilibrium of this model where factor endowments are exogenously given at a particular point of time. Findings An increase in the capital endowment resulting from an exogenous foreign capital inflow raises demand for labour and wage rates in both the sectors. So, it lowers the rental rate on capital and thus aggravates the problem of skilled–unskilled wage inequality because the skilled labour using sector is more capital intensive than the other production sector. However, it may lower the size of the criminal sector and thus may raise the level of the gross domestic product. Originality/value There exists substantial theoretical works on the problem of skilled–unskilled wage inequality, but none of these works focuses on the general equilibrium allocation of unskilled labour to the criminal sector. On the other hand, existing models specialised to analyse theoretical implications of crime and punishment do not focus on the interaction between crime and wage inequality.

scholarly journals Foreign Capital Inflow, Technology Transfer, and National Income

2001 ◽  
Vol 40 (1) ◽  
pp. 49-56 ◽  
Author(s):  
Sarbajit Chaudhuri
Keyword(s):  
Technology Transfer ◽  
Open Economy ◽  
Foreign Capital ◽  
Full Employment ◽  
Small Open Economy ◽  
National Income ◽  
Capital Inflow ◽  
Short Paper ◽  
Export Sector ◽  
Output Ratio

According to Jones and Marjit (1992), in a two-sector, full-employment model it is not possible to show that growth in the foreign capital employed in the export sector of a small open economy will lead to a fall in the welfare in the presence of a protected import-competing sector. In this short paper, we have shown that one may get the immiserising result even in this framework if the inflow of foreign capital into the export sector is accompanied by technology transfer, which leads to a fall in the labour-output ratio in this sector.

Skilled-Unskilled Wage Inequality, Growth of Skilled Labour and Development Policies

2014 ◽  
Vol 5 (1) ◽  
Author(s):  
Manash Ranjan Gupta ◽  
Priya Brata Dutta
Keyword(s):  
Steady State ◽  
Wage Inequality ◽  
Open Economy ◽  
Relative Wage ◽  
Agricultural Product ◽  
Skilled Workers ◽  
Current Output ◽  
Skilled Labour ◽  
Traded Goods ◽  
Unskilled Labour

AbstractThis paper develops a small open economy model with three sectors and four factors – land, unskilled labour, skilled labour and capital. Two of these three sectors produce final traded goods of which one sector produces an agricultural product using land and unskilled labour and another sector produces a manufacturing product using skilled labour and capital. The third sector, called education sector produces a service using skilled labour and capital as inputs; and this service transforms unskilled workers into skilled workers. The current output is added to the existing stock of skilled labour at the next point of time. The paper first analyses various comparative static effects on skilled-unskilled relative wage in the static model where no factor endowment changes over time. Next, it analyses the long-run equilibrium properties in the dynamic model with intertemporal accumulation of skilled labour; and derives various comparative steady state effects on skilled unskilled relative wage. Comparative steady-state effects appear to be stronger than the corresponding comparative static effects.

Foreign Aid, Wage Inequality, and Welfare for a Small Open Economy with Tourism

2010 ◽  
Vol 18 (3) ◽  
pp. 454-464 ◽  
Author(s):  
Chi-Chur Chao ◽  
Jean-Pierre Laffargue ◽  
Pasquale M. Sgro
Keyword(s):  
Foreign Aid ◽  
Wage Inequality ◽  
Open Economy ◽  
Small Open Economy

scholarly journals Terms of Trade, Intermediate Goods and International Real Business Cycles: Australia Case

2004 ◽  
Vol 5 (2) ◽  
pp. 95-111
Author(s):  
Jai Hyung Yoon ◽  
Francis In Yoon
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Open Economy ◽  
Manufacturing Sector ◽  
Dominant Role ◽  
Small Open Economy ◽  
Terms Of Trade ◽  
Intermediate Goods ◽  
Real Business Cycles ◽  
Productivity Shock

This paper examines whether a two-sector business cycle model with intermediate and import goods successfully replicates stylized facts of the international real business cycle in a small open economy. Our model incorporates the neoclassical framework, with productivity shocks in both manufacturing and non-manufacturing sectors, terms of trade shock, import goods and intermediate goods. Our model is able to mimic the important features of business cycles in Australia. The productivity shock of the non-manufacturing sector has a dominant role in a small open economy's business cycle. The productivity shock of the non-manufacturing sector increases imports more than exports.

scholarly journals Foreign Capital Inflow, Non-traded Intermediary, Urban Unemployment, and Welfare in a Small Open Economy: A Theoretical Analysis

2001 ◽  
Vol 40 (3) ◽  
pp. 225-235 ◽  
Author(s):  
Sarbajit Chaudhuri
Keyword(s):  
Theoretical Analysis ◽  
Open Economy ◽  
Foreign Capital ◽  
Small Open Economy ◽  
Capital Inflow ◽  
Export Sector ◽  
Urban Unemployment

The paper attempts to analyse the implications of foreign capital inflow in a small open economy with a non-traded intermediary on the welfare and urban unemployment in a three-sector Harris-Todaro (1970) framework. The standard immiserising result of a foreign capital inflow has been found to be valid when the non-traded intermediary is solely used in the protected import-competing sector. However, if the export sector too uses the intermediary, the economy may experience an improvement in its welfare and a reduction in the urban unemployment level.

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