International labour movement, public intermediate input and wage inequality: a dynamic approach

Dianshuang Wang

Economic Research-Ekonomska Istraživanja, 2019, vol. 32, issue 1, 1-16

Abstract: This article incorporates the public intermediate input in a dynamic model with two final private sectors and a public sector and investigates impacts of an inflow of skilled and unskilled labour on wage inequality. The public intermediate input can be accumulated and its accumulated stock serves as a public input for private production. From the analysis, in the steady state equilibrium, an increase in the skilled and unskilled labour endowment raise the stock of public intermediate input. Also, an inflow of skilled labour reduces the wage of skilled labour and raises the wage of unskilled labour, and an inflow of unskilled labour increases both the wages of skilled and unskilled labour. Concerning their impacts on the wage inequality, an inflow of skilled labour decreases the wage inequality, while the result of an inflow of unskilled labour on wage inequality is ambiguous. If the production elasticity of the public intermediate input stock in the skill-using sector is small enough, an inflow of unskilled labour narrows down wage inequality.

Date: 2019
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DOI: 10.1080/1331677X.2018.1546123

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