WAGE DIFFERENTIALS AND EMPLOYMENT IN A TWO-SECTOR MODEL WITH A DUAL LABOUR MARKET

The concept of a dual labour market is analysed in a two-sector general equilibrium model. The primary sector pays efficiency wages, while there is no connection between efficiency and the relative wage level in the secondary sector. The two sectors produce different goods. Capital is assumed sector-specific. The results under different conditions in the labour market (market clearing, minimum wages and levelling of the wage distribution) are derived analytically. Comparative statics are discussed by applying a linearized version of the model. The outcomes may be used to explain observed differences in wage and employment distributions in the US and Europe.