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The Stolper-Samuelson Theorem in a Wage Differential Framework
TL;DR: The authors developed a wage differential model with a unionized and a non-unionized informal sector for a small open economy, where the unionized wage rate adjusts to a cost of living index and the informal wage is market-determined.
Abstract: We develop a wage differential model with a unionized and a non-unionized informal sector for a small open economy. The unionized wage rate adjusts to a cost of living index and the informal wage is market-determined. In this structure, a Stolper-Samuelson type result holds without any assumption regarding factor-intensity ranking.
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TL;DR: In this paper, the consequences of liberal economic policies on informal wage in a general equilibrium model with formal informal labor markets, wage-differential, vertical linkage and restricted capital movement are investigated.
168 citations
TL;DR: This paper developed a three-sector general equilibrium structure with diverse trade pattern and imperfection in the unskilled labour market to analyze the consequences of international mobility of skilled and unskilled labor on the skilled-unskilled wage inequality in the developing economies.
92 citations
TL;DR: In this paper, the authors formalized a general equilibrium model of inter-sectoral capital mobility and informal wage to argue that, with limited degree of capital mobility, trade reform reduces the informal wage.
Abstract: Studies on formal-informal interactions in the labor markets of developing countries claim that economic reform increases the level of informal activity. Although the extent of such claims differs across countries, it is generally believed that reform is likely to depress informal wage by contracting the formal sector and driving labor onto its informal counterpart. However, available empirical evidence suggests that real wage and real fixed assets in the informal manufacturing sector have risen significantly across most states in post-liberalization India. Using this as a benchmark, we formalize a general equilibrium model of inter-sectoral capital mobility and informal wage to argue that, with limited degree of capital mobility, trade reform reduces the informal wage. This is the conventional wisdom usually obtained under a partial equilibrium framework. However, with increased mobility of capital this result is reversed. We offer detailed empirical evidence on the movements of real wage in the informal sector in India and how this affects poverty at the state level. The basic result on income mobility is corroborated by a primary survey in the province of West Bengal, for which we offer descriptive analysis on household income levels in the province's informal manufacturing and service sectors.
18 citations
Cites background from "The Stolper-Samuelson Theorem in a ..."
...The model is similar in spirit to Agenor and Montiel (1996), Carruth and Oswald (1981), Marjit and Beladi (2002) and Marjit (2003)....
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...The theoretical inspirations behind this framework are drawn from Carruth and Oswald (1981), Agenor and Montiel (1996), Kar and Marjit (2001), Marjit and Beladi (2002) and Marjit (2003), etc....
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TL;DR: In this paper, the authors constructed a labour transition model combining the features of job loss and job creation in the formal sector of an economy and examined the impact of trade liberalization on net job transition from formal to informal sector.
Abstract: This article constructs a labour transition model combining the features of job loss and job creation in the formal sector of an economy. The theoretical model examines the impact of trade liberalization on net job transition from formal to informal sector. In the light of our model we establish certain pre-conditions based on simulations under which trade liberalization is accompanied by rising informal sector. The model outcome conforms to the empirical evidence of rising informality with openness which we find in 18 Central Eastern European and Former Soviet Union countries.
17 citations
Cites background from "The Stolper-Samuelson Theorem in a ..."
...Beladi et al. (2005) introduces an informal sector in the Harris–Todaro model, which provides industrial input to the formal sector, but their conclusion does not include the direct impact of trade reforms on informal labour sector....
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TL;DR: In this article, the authors make an attempt to provide a theoretical foundation of those empirical findings in terms of a three sector general equilibrium model reasonable for at least a few developing economies.
Abstract: Removal of tariff restrictions from the relatively low-skill sectors; growth in foreign direct investment; and, decline of trade union strength of the unskilled workers are cited in the empirical literature as the prime factors responsible for the growing incidence of wage inequality in many of the developing countries in the liberalized trade and investment regime. This paper has made an attempt to provide a theoretical foundation of those empirical findings in terms of a three sector general equilibrium model reasonable for at least a few developing economies. The analysis of the paper has found that the wage inequality rises unambiguously due to policies like an increase in the relative price of the high-skill commodity and a reduction of import tariff from the low-skill manufacturing sector. However, an inflow of foreign capital produces a favourable effect on the wage inequality under a reasonable factor intensity condition. Interestingly, contrary to the common wisdom, a policy of labour market reform may raise the competitive unskilled wage and improve wage inequality under reasonable condition.
13 citations
Cites background from "The Stolper-Samuelson Theorem in a ..."
...Marjit and Beladi (2002) have built up a two sector general equilibrium model with distorted labour market with one fixed (unionized) wage and one variable (competitive) wage....
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...There are theoretical papers in the existing literature e.g. Carruth and Oswald (1981), Agenor and Montiel (1995), Marjit and Beladi (2002) and Marjit (2003) which have dealt with labour market distortion for different purposes....
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References
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TL;DR: In this paper, the consequences of liberal economic policies on informal wage in a general equilibrium model with formal informal labor markets, wage-differential, vertical linkage and restricted capital movement are investigated.
168 citations
Book•
01 Jan 1971
150 citations
Posted Content•
TL;DR: In this article, the authors examine the role of the labor market in the transmission process of adjustment policies in developing countries and examine the implications of wage inertia, nominal contracts, labor market segmentation, and impediments to labor mobility for stabilization policies.
Abstract: This paper examines the role of the labor market in the transmission process of adjustment policies in developing countries. It begins by reviewing the recent evidence regarding the functioning of these markets. It then studies the implications of wage inertia, nominal contracts, labor market segmentation, and impediments to labor mobility for stabilization policies. The effect of labor market reforms on economic flexibility and the channels through which labor market imperfections alter the effects of structural adjustment measures are discussed next. The last part of the paper identifies a variety of issues that may require further investigation, such as the link between changes in relative wages and the distributional effects of adjustment policies.
144 citations
"The Stolper-Samuelson Theorem in a ..." refers background in this paper
...This closely captures the labour market conditions in developing countries, as empirically verified and analysed in Mazumdar (1983), Fields (1990), Turnham (1993), Agenor and Montiel (1996) and Agenor (1996), among others....
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TL;DR: This paper developed a three-sector general equilibrium structure with diverse trade pattern and imperfection in the unskilled labour market to analyze the consequences of international mobility of skilled and unskilled labor on the skilled-unskilled wage inequality in the developing economies.
92 citations
TL;DR: In a partially unionised economy, union workers force up their absolute wage rate, how does this affect the wage paid in the non-union sector? as mentioned in this paper suggests a simple answer.
75 citations
"The Stolper-Samuelson Theorem in a ..." refers methods in this paper
...A similar type of structure has been used by Carruth and Oswald (1981) to focus on the unionized and non-unionized wage differential....
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