Opening the Pandora's Box – Liberalised Input Trade and Wage Inequality with Non-traded Goods and Segmented Unskilled Labour Markets

Soumyatanu Mukherjee

No 2016-15, Discussion Papers from University of Nottingham, GEP

Abstract: This paper, using a full-employment general equilibrium model for a developing Asian country like India with internationally non-traded goods and international fragmentation in skill-intensive production, illuminates how liberalised input trade, by enhancing demand for skills in the skill-intensive service sectors, could affect the unskilled wages prevailing in the informal sectors and employment conditions in those sectors, through the existence of finished non-tradable and the corresponding domestic demand-supply forces. The model economy is characterised by dual unskilled labour market with unionised formal and non-unionised informal sectors. Quantitative analyses have also been performed to simulate how the changes in elasticities of factor substitution in production of different sectors account for the movement in informal wage and therefore the movement in skilled–unskilled wage gap. Therefore, the relative wage inequality in a developing Asian country like India with dual labour markets has not been governed only by the increase in the skilled wages.

Keywords: Input trade reform; non-traded goods; informal wage; informal employment; wage inequality; general equilibrium; India (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-int, nep-iue and nep-sog
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Persistent link: https://EconPapers.repec.org/RePEc:not:notgep:16/15

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