Anti‐immigration policy in the destination country and skilled–unskilled wage inequality in a source economy with or without unemployment

This paper is aimed at theoretically examining the consequence of the anti‐immigration policy adopted in the destination country on the skilled–unskilled wage inequality in a source nation using a couple of two‐sector, specific‐factor general equilibrium models in both the presence and absence of unemployment. Emigration requires incurring some capital cost for professional skill formation on the part of every prospective emigrant that adds to the opportunity cost of emigration. The authority of the destination country determines the number of visas to be granted and hence directly controls the magnitude of skilled emigration from the source country. In the migration equilibrium, the expected skilled wage income abroad is equal to the opportunity cost of emigration. In both the presence and absence of unemployment of unskilled labor, the outcome of the policy on the wage inequality crucially hinges on both the magnitude of the fixed cost of emigration and the technological factors. In the specific‐factor Harris–Todaro model, the degree of imperfection in the unskilled labor market is an additional factor. Finally, some policy recommendations have been made for protecting the interest of the poor unskilled workforce.     

Urban bias and wage inequality

This paper explores how urban bias affects skilled–unskilled wage inequality through building several general equilibrium models. In the basic model, we find that an increase in the degree of urban bias will widen wage inequality if the unskilled sector is more capital intensive than the skilled sector and reduce wage inequality if the skilled sector is more capital intensive than the unskilled sector. In the extended models, we find that the conclusion obtained in the basic model almost still holds under different conditions.     

Skilled–unskilled wage inequality: A general equilibrium analysis

The paper develops a static three sector competitive general equilibrium model of a small open economy in which skilled labour is mobile between a traded good sector and a non-traded good sector and unskilled labour is specific to another traded good sector. The capital is perfectly mobile among all these three sectors. We examine the effects of change in different factor endowments and of globalization on skilled–unskilled wage inequality. We find that the effect of a change of a factor endowment on wage inequality depends on the factor intensity ranking between two skilled labours using sectors and on the relative strength of the marginal effects on demand for and supply of non-tradable good. We also find that a decrease in the price of the product produced by skilled (unskilled) labour using traded good sector lowers (raises) the skilled–unskilled wage inequality.     

Organized crime and wage inequality

This paper stresses the role of industrial organization of crime, and explores how organized crime affects wage inequality. We find that, when only unskilled workers (or both skilled and unskilled workers) engage in organized crime, an increase in the number of criminal groups will increase wage inequality if (1) the skilled sector is more capital intensive than the unskilled sector, and (2) the price elasticity of demand for the skilled product is large enough. However, when there are only skilled workers engaging in organized crime, condition (1) is sufficient to widen wage inequality, irrespective of the price elasticity.     

Factor mobility and skilled–unskilled wage inequality in the presence of internationally traded product varieties

Most existing studies examine the issue of skilled–unskilled wage inequality by using models that are relevant only in the long-run. In addition, studies that utilise product variety models assume that varieties of producer services are non-traded. Using a product variety model, this paper examines the issue of the skilled–unskilled wage inequality when producer services are internationally traded. The paper shows that, irrespective of the size of income share of capital, inflow of capital (which can also be interpreted as foreign direct investment) has no effect on skilled–unskilled wage inequality in the short-run. However, in the long-run, inflow of capital can decrease the skilled–unskilled wage inequality. An increase in the price of the agricultural good can decrease the skilled–unskilled wage inequality in the short-run.     

Institutional quality and skilled–unskilled wage inequality

This paper establishes two-sector general equilibrium models in the presence of unproductive activities to investigate how an improvement of the institutional quality influences the skilled–unskilled wage inequality. We find that an improvement of the institutional quality will affect the interest rate, and then the interest rate combining with the capital intensity will generate an impact on the skilled–unskilled wage inequality. Specifically, both the interest rate and comparisons of the capital–labor relative distributive shares between two sectors play an important role in determining the skilled–unskilled wage gap in an economy featured with unproductive activities. The above results are robust even when we extend the basic theoretical model in several different ways.     

Rural–urban human capital disparity and skilled–unskilled wage inequality in China

This paper builds three‐sector general equilibrium models to investigate how a shrink of rural–urban human capital disparity generates an impact on skilled–unskilled wage inequality in China. In the basic model where the urban skilled sector and the urban unskilled sector have no upstream and downstream linkage, we find that the wage inequality will be narrowed down if the urban skilled sector is more capital intensive than the urban unskilled sector. To capture the characteristic of China's state capitalism, we build an extended model where the urban skilled sector acts as an upstream industry for the urban unskilled sector, and find that the wage inequality will be reduced if the substitution elasticity of unskilled labor and intermediate product in the urban unskilled sector is large enough. When we consider the factual characteristics of the Chinese economy, our models predict that a shrink of rural–urban human capital disparity will be helpful to reduce the skilled–unskilled wage inequality in China.     

Labour-market institutions, (un)employment,wages, and growth: theory and data

We analyse the implications of labour-market institutions on wage inequality in favour of skilled labour, on relative unemployment of unskilled labour, and on the economic growth rate in two clusters resulting from 27 OECD countries: Cluster 1, closely related with the Anglo-Saxon model, and Cluster 2, dominated by the Continental-European model. By linking the unskilled wage to the skilled one in Cluster 2, due to the indexation of social benefits to per-capita income, we accommodate the observed paths of the three variables in both clusters between 1991 and 2008: Cluster 1 presents a higher wage inequality in favour of skilled labour, a lower unemployment of the unskilled labour, and a better economic growth rate.     

Factor‐biased public infrastructure and wage inequality

This paper analyzes how factor‐biased public infrastructure affects the skilled–unskilled wage inequality. In the basic model with a full employment economy, we find that when the weighted dependence of skilled labor and capital in the urban skilled sector on public infrastructure is large enough relatively to that of unskilled labor and capital in the urban unskilled sector, the wage inequality will be expanded. We also discuss labor‐biased and capital‐biased public infrastructure in our framework, and find that the relative dependences of relevant labor or capital on public infrastructure are important determinants of wage inequality. In the extended models, we analyze separately the issue of wage inequality in the economy with unemployment and the totally open capital market, and find the results of the basic model almost still hold.     

Unskilled immigration,technical progress,and wages—Role of the household sector

This paper revisits the relationship between unskilled immigration and skilled wage in the context of the BREXIT episode. Our simple general equilibrium model introduces a household sector, the inclusion of which shows that both return to capital and effective skilled wage may increase with a greater inflow of immigrants. This is a novel outcome in the theory of trade and factor flows. In addition, though technical progress in a skill‐intensive sector raises wage inequality, it no longer displaces traditional jobs. Here, the usual negative impact of unskilled immigration on the traditional sector is mitigated by increased returns to the unskilled workers.     

The combination of two tragedies: commons and anticommons tragedies

This paper studies the relationship between social conflict and skilled–unskilled wage inequality through the three-sector general equilibrium approach. In the basic model without the urban unskilled minimum wage, we find that when the government enhances the degree of controlling social conflict, the skilled–unskilled wage inequality will be narrowed down (resp. widened) if the urban skilled sector is more capital intensive (resp. labor intensive) than the urban unskilled sector. The extended models address the issue under different economic structures or different types of social conflict. In the extended model with the urban unskilled minimum wage, we find that the skilled–unskilled inequality will be widened when the degree of controlling social conflict is increased. In other extended models, we find that the above obtained results are still robust.     

Downsizing, wage inequality and welfare in a developing economy

This paper focuses on the cost cutting effects of firm downsizing in a developing economy. Using a dualistic production structure to depict a developing economy, the impacts of downsizing on wage inequality and social welfare are examined. Downsizing is revealed to not only narrow the wage gap between skilled and unskilled labor but also to raise the level of manufactured output and reduce the unemployment ratio in the urban sector. These effects improve the social welfare of the economy.     

Can International Factor Mobility Reduce Wage Inequality in a Dual Economy?*

This paper analyzes the consequences of international factor movements on the skilled–unskilled wage inequality in a dual‐economy set‐up that includes unemployment and three intersectorally mobile factors of production—unskilled labor, skilled labor, and capital. Thus far, theoretical literature on this subject has adopted the full‐employment framework and hence ignored the problem of unemployment. The analysis in this paper reveals that the results crucially depend on the difference in the intersectoral factor intensities between skilled labor and capital. In particular, it demonstrates the existence of a possibility of deterioration in wage inequality following foreign unskilled‐labor inflow.     

Labour mobility and wage inequality in the presence of endogenous foreign investment

This paper examines the impact of labour mobility and increased competition on skilled–unskilled wage inequality and foreign investment. Unlike the existing literature this paper considers a model where foreign investment is endogenously determined. The paper shows that in the shortrun, inflow of either skilled or unskilled labour has no effect on wage inequality but increased competition increases wage inequality. Inflow of either type of labour increases foreign investment but the impact of increased competition on foreign investment cannot be unambiguously determined. Inflow of skilled labour increases wage inequality in the longrun and its effect on foreign investment is positive. Increased competition in the longrun increases wage inequality, foreign investment and welfare.     

Unemployment,Wage Inequality and International Factor Movement in the Presence of Agricultural Dualism

This paper investigates how the international factor movements affect the unemployment and skilled–unskilled wage inequality with the existence of a modern agricultural sector. Our research has the new feature that we not only consider that the rural labor migrates to the urban sector but also to the modern agricultural sector. The main conclusions are that the unskilled labor outflow certainly decreases the wage inequality and unemployment rate and the influences that skilled labor movement and capital inflow have on wage inequality and unemployment rate are dependent on the factor intensity between the urban and modern agricultural sectors.     

Wage Inequality,Increased Competition,and Trade Liberalization: Short Run vs Long Run

This paper examines the impact of increased competition and trade liberalization on skilled–unskilled wage inequality in the short run as well as the long run. It is shown that an increase in the number of firms in the producer services sector increases wage inequality in the short run even if the income shares of capital in the industrial and agricultural sectors were identical. A decrease in the services sector's fixed cost decreases wage inequality in the short run if the income share of capital in the agricultural sector is relatively large. Owing to the presence of external economies, a decrease in the services sector's fixed cost increases wage inequality in the long run. A decrease in import duty on the agricultural good increases wage inequality in the short as well as the long run but its effect in the long run is stronger due to the presence of external economies in the industrial sector.     

Corporate profit tax,firm entry with unemployment,and income inequality

In this paper, we provide a general equilibrium analysis of corporate profit tax on income distribution, unemployment, and wage inequality. With firm dynamics in industrial sector, we identify a new channel through which profit tax affects income and wage inequality: profit tax cut will widen not only the wage gap between skilled and unskilled labor, but also exacerbate the wage inequality of unskilled labor among different sectors. The welfare effect of profit tax cut depends on unemployment deepening (labor-distortion effect) and more manufacturing firms enter the market (business-creation effect), eroding the market share of incumbent firms (business-stealing effect).     

Trade liberalization,firm entry,and income inequality

This paper examines the short‐ and long‐run effects of trade liberalization via tariff reductions on income inequality in an economy, which is characterized by an imperfectly competitive urban manufacturing sector and a perfectly competitive rural agricultural sector. Tariff reductions reduce domestic output in the importable urban manufacturing sector, leading to shifts of capital from the urban sector to the rural agricultural sector. This can narrow the wage gap between skilled and unskilled labor in the short run. However, the lowered capital cost attracts new firms, and subsequently excessive entry of firms, to the urban manufacturing sector. This firm entry effect can mitigate the favorable effect of tariff reductions on wage inequality in the long run. Empirical study confirms the findings.     

Foreign capital inflow,skilled–unskilled wage inequality and unemployment of unskilled labour in a fair wage model

This paper has developed a three-sector general equilibrium framework that explains unemployment of both skilled and unskilled labour. Unemployment of unskilled labour is of the Harris–Todaro (1970) type while unemployment of skilled labour is caused due to the validity of the FWH in the high-skill sector. There are two types of capital one of which is specific to the primary export sector while the other moves freely among the different sectors. Inflows of foreign capital of either type unambiguously improve the economic conditions of the unskilled working class. However, the effects on the skilled–unskilled wage inequality and the extent of unemployment of both types of labour crucially hinge on the properties implied by the efficiency function of the skilled workers.     

TECHNOLOGICAL CHANGE, INEQUALITY AND WORK SHARING

The effects of technological change on wage inequality are usually studied under the assumption of exogenous supplies of skilled and unskilled workers. Moreover, in these studies there is no distinction between the stock (number of workers) and the flow (hours of work) dimension of labour services. In the present paper, we construct a model in which hours of work and technological change affect both the (relative) demand and supply of unskilled workers. The labour supply of unskilled workers (numbers of persons) is derived from a model of household labour supply in which households differ regarding the disutility suffered when both household members work. Combining together the (relative) supply and demand parts of the model we are able to establish technological change (either biased or neutral) as a plausible explanation of recent trends in wage inequality.