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Fair Wage Hypothesis, International Factor Mobility and Skilled-Unskilled Wage Inequality in a Developing Economy

Sarbajit Chaudhuri () and Dibyendu Banerjee

MPRA Paper from University Library of Munich, Germany

Abstract: Agell and Lundborg (1995, Economica) have accommodated the fair wage hypothesis (FWH) in an otherwise 2×2 Hechscher-Ohlin-Samuelson model for examining the robustness of certain standard trade theorems. The present paper proposes to introduce the FWH in a three sector general equilibrium model with two types of labour: skilled and unskilled. Skilled labour is specific to the high-skill sector and receives the efficiency wage while unskilled labour in the other two sectors receives either the competitive wage or the high unionized wage. Using such a framework the consequences of international mobility of factors of production on the skilled-unskilled wage inequality and unemployment of skilled labour in a developing economy have been analyzed. Both foreign capital inflows and emigration of skilled labour improve the skilled-unskilled wage inequality under reasonable condition. Particularly, the result relating to emigration of skilled labour is counterintuitive.

Keywords: Fair wage hypothesis; skilled labour; unskilled labour; wage inequality; Foreign capital; unemployment (search for similar items in EconPapers)
JEL-codes: F13 J41 O15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev, nep-lab and nep-mig
Date: 2008-06-20
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