Foreign Capital, National Welfare and Unemployment in a Fair Wage Model

Sarbajit Chaudhuri and Dibyendu Banerjee

MPRA Paper from University Library of Munich, Germany

Abstract: The paper develops a three-sector general equilibrium model that can explain simultaneous existence of unemployment of both skilled and unskilled labour. The unemployment of unskilled labour is explicated in terms of rural-urban migration mechanism while that of skilled labour is shown using the ‘fair wage hypothesis’. The paper finds that foreign direct investment (FDI) in the primary export sector improve both national welfare and urban unemployment problem of unskilled labour while the consequences of foreign capital flows into the import-competing sector and high-skill export sector are ambiguous. The paper justifies the desirability of FDI flow in the primary export sector from the perspective of both unemployment and social welfare.

Keywords: Fair wage hypothesis; skilled labour; unskilled labour; national welfare; unemployment. (search for similar items in EconPapers)
JEL-codes: F10 F13 J41 O15 (search for similar items in EconPapers)
Date: 2009-08-30
New Economics Papers: this item is included in nep-lab
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