Institutional quality and skilled–unskilled wage inequality |
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Institution: | 1. Department of Food and Resource Economics, University of Copenhagen, Denmark;2. Center for Statistics, Department of Finance, Copenhagen Business School, Denmark;3. Cardiff Business School, University of Cardiff, United Kingdom;1. Department of Economics, Western Michigan University, 1903 West Michigan Ave., Kalamazoo, MI 49008, USA;2. Centre for Financial Econometrics, Deakin University, 221 Burwood Hwy., Melbourne, Victoria, 3125, Australia |
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Abstract: | 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. |
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