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Article
Publication date: 17 August 2021

Sriparna Goswami and Bidisha Chakraborty

This paper aims to understand the differing impacts of wealth distribution on human capital accumulation and skilled-unskilled labour generation under three educational…

Abstract

Purpose

This paper aims to understand the differing impacts of wealth distribution on human capital accumulation and skilled-unskilled labour generation under three educational paradigms as follows: private, public and a system of mixed education.

Design/methodology/approach

The authors use an overlapping generations model.

Findings

The wealth dynamics show that both in the private education system and public education system, there are two possible outcomes- stagnation and steady growth depending on the efficiency of the education system, skill premium and other parameters. The choice of the education system through voting is discussed. It is found that skilled workers would always vote for private education whilst unskilled workers vote for private education if public education expenditure of the economy is low.

Research limitations/implications

The study is subject to several limitations. This paper considers the rate of interest and wage rate to be exogenously given, and thus ignores the general equilibrium effects. The authors do not consider the labour-leisure choice. The introduction of labour leisure choice in the model would alter many of the results. The authors do not consider heterogeneous ability across individuals. The analysis of the differential efficiency of the different education systems needs further, rigorous research. Also, this paper does not consider other occupations such as entrepreneurship and self-employment. This paper considers the labour demand function to be perfectly elastic, and hence, does not consider any demand constraint. What happens if bequests are taxed? What happens if parents are not altruistic? These questions may be addressed in future research.

Social implications

If the proportion of tax paying skilled labour is low in any country, pure public education may not be able to generate sustained human capital growth. For countries with a sufficiently large proportion of skilled labour, the public education system would be successful. On the other hand, if skill premium is low or the education system is poorly managed private education system may fail too.

Originality/value

Whilst investigating the effects of public vs private education on growth and development in the presence of unequal wealth distribution, The authors have tried to address a few questions. First, why the public education system has been successful in skill accumulation in developed countries whilst it has failed to do so in less developed countries? Second, why do some countries with mostly privately run educational institutions perform much better in human capital production whilst others do not? Third, in an economy with unequal wealth distribution, what are the factors that result in public or private education as a voting equilibrium outcome?

Details

Indian Growth and Development Review, vol. 14 no. 3
Type: Research Article
ISSN: 1753-8254

Keywords

Article
Publication date: 1 June 1999

N. Potts

The aim of this article is to explore the current European debate over labour market flexibility. First, it considers lessons from economic theory. The classical consensus…

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Abstract

The aim of this article is to explore the current European debate over labour market flexibility. First, it considers lessons from economic theory. The classical consensus considering unemployment to be purely voluntary, the Keynesian consensus introducing the concept of demand deficient involuntary unemployment and finally the neo‐classical consensus returning us to the classical viewpoint of the dominance of real conditions in the labour market. In order to proceed without confusion the article provides a clear working definition of the natural rate of unemployment and its three main components, voluntary unemployment, structural unemployment and involuntary unemployment. It then proceed to analyse each of these main components in detail, illustrating the difference between a free market approach and a European Commission approach to reducing each component of unemployment. The article concludes that the future is dependent on all EU citizens as electors of governments and holders of wages to moderate.

Details

European Business Review, vol. 99 no. 3
Type: Research Article
ISSN: 0955-534X

Keywords

Article
Publication date: 3 August 2020

Manash Ranjan Gupta

This study aims to focus on the effects of economic globalisation programme on the problems of criminal activities and on the degree of skilledunskilled wage inequality.

Abstract

Purpose

This study aims to focus on the effects of economic globalisation programme on the problems of criminal activities and on the degree of skilledunskilled wage inequality.

Design/methodology/approach

A competitive general equilibrium model of a small open economy is developed. Unskilled labour moves from the production sector to the criminal sector. Those who join the criminal sector snatch a part of capitalists’ income and skilled workers’ income to finance their consumption and face positive probability of being caught and punished. The size of the criminal sector and the rental rate on capital are simultaneously determined in the short-run equilibrium of this model where factor endowments are exogenously given at a particular point of time.

Findings

An increase in the capital endowment resulting from an exogenous foreign capital inflow raises demand for labour and wage rates in both the sectors. So, it lowers the rental rate on capital and thus aggravates the problem of skilledunskilled wage inequality because the skilled labour using sector is more capital intensive than the other production sector. However, it may lower the size of the criminal sector and thus may raise the level of the gross domestic product.

Originality/value

There exists substantial theoretical works on the problem of skilledunskilled wage inequality, but none of these works focuses on the general equilibrium allocation of unskilled labour to the criminal sector. On the other hand, existing models specialised to analyse theoretical implications of crime and punishment do not focus on the interaction between crime and wage inequality.

Details

Indian Growth and Development Review, vol. 14 no. 1
Type: Research Article
ISSN: 1753-8254

Keywords

Article
Publication date: 26 September 2008

Kunal Sen

There has been a period of slow but a steady increase in wage inequality in the Indian manufacturing sector since the mid‐1980s, which has gone hand‐in‐hand with an…

Abstract

Purpose

There has been a period of slow but a steady increase in wage inequality in the Indian manufacturing sector since the mid‐1980s, which has gone hand‐in‐hand with an increase in the relative employment of skilled workers across all industries in the same period. The purpose of this paper is to investigate whether the co‐movement of relative employment and wages of skilled workers can be attributed to the changes in trade policy that has occurred in the Indian economy since the mid‐1980s.

Design/methodology/approach

The two dominant theoretical perspectives on why trade reforms lay lead to wage inequality are Heckscher–Ohlin theory and trade‐induced skill‐biased technological change (SBTC). The paper evaluates the applicability of these theoretical perspectives to the Indian case using disaggregated industry data from Annual Survey of Industries from 1973 to 1997.

Findings

Evidence was found of the validity of both the two dominant theoretical perspectives on wage inequality to explain the co‐movement in wage inequality and relative skill intensity in Indian manufacturing, with both variables increasing in the 1990s. Trade‐induced technological progress has led to an increase in relative skill intensity and wage inequality within industries. At the same time, the decline in protection that seems to have occurred more in unskilled labour‐intensive industries has led to a relative fall in the economy‐wide return to unskilled labour relative to skilled labour. Therefore, trade reforms have led to a widening of wage gap between skilled and unskilled workers, and an increase in relative skill intensity in Indian manufacturing.

Originality/value

The paper contributes to support of the trade‐induced SBTC hypothesis which may provide a consistent explanation of why many countries in the south experienced increases in wage inequality with the onset of trade liberalisation.

Details

Indian Growth and Development Review, vol. 1 no. 2
Type: Research Article
ISSN: 1753-8254

Keywords

Book part
Publication date: 14 July 2008

Matthias Doepke and Dirk Krueger

We investigate the positive and normative consequences of child-labor restrictions for economic aggregates and welfare. We argue that even though the laissez-faire outcome…

Abstract

We investigate the positive and normative consequences of child-labor restrictions for economic aggregates and welfare. We argue that even though the laissez-faire outcome may be inefficient, there are usually better policies to cure these inefficiencies than the imposition of a child-labor ban. Given this finding, we investigate the potential political-economic reasons behind the emergence and persistence of child-labor legislation. Our investigation is based on a structural dynamic general equilibrium model that provides a coherent and uniform framework for our analysis.

Details

Frontiers of Family Economics
Type: Book
ISBN: 978-1-84950-542-0

Book part
Publication date: 2 June 2008

Brati Sankar Chakraborty and Abhirup Sarkar

Most models attempting to give an account of trade-induced symmetric increase in wage inequality have abandoned the factor price equalization (FPE) framework. The present…

Abstract

Most models attempting to give an account of trade-induced symmetric increase in wage inequality have abandoned the factor price equalization (FPE) framework. The present chapter retains the FPE framework and identifies a plausible route through which trade might increase wage inequality in all trading countries. A two-sector model with one constant returns sector producing basic goods and another increasing returns to scale sector producing fancy goods is developed. A quasi-linear utility function is used to capture the divide between basic and fancy goods. There are two types of productive factors, skilled and unskilled labour, and they differ with respect to their occupational options. Skilled labour can work both in the skill using fancy goods sector and in the unskilled labour using basic good producing sector, whereas unskilled labour is tied down to unskilled job. The model holds possibilities of multiple equilibria and under reasonable parameterization skill premium increases in all countries following trade.

Details

Contemporary and Emerging Issues in Trade Theory and Policy
Type: Book
ISBN: 978-1-84950-541-3

Keywords

Article
Publication date: 18 April 2008

Sahana Roy Chowdhury

The purpose of this paper is to provide a theoretical explanation for the empirical observation that the relative migration of unskilled (skilled) labor tends to occur…

Abstract

Purpose

The purpose of this paper is to provide a theoretical explanation for the empirical observation that the relative migration of unskilled (skilled) labor tends to occur from developing economies that are relatively unequal (equal).

Design/methodology/approach

Wealth inequality is related with migration incentives of skilled and unskilled labor in a model of occupational choice using a two‐period overlapping generations framework.

Findings

It is shown that high inequality creates a disincentive to migrate for skilled labor. Too much equality however creates a disincentive to migrate for unskilled labor. Thus, a highly unequal (equal) economy sustains unskilled (skilled) labor migration only.

Originality/value

Relative to the existing theoretical literature on migration, the distinguishing feature of this model is that it has entrepreneurship as an alternative occupational choice. This implies that the incentive to migrate is not affected solely by wage differentials across countries. It is shown that in a highly unequal developing economy there is no skilled migration – despite the gap between the skilled wage of the source economy and that of the foreign economy – in equilibrium.

Details

Indian Growth and Development Review, vol. 1 no. 1
Type: Research Article
ISSN: 1753-8254

Keywords

Article
Publication date: 8 May 2017

Paulo de Andrade Jacinto, Eduardo Pontual Ribeiro and Tulio Cravo

The purpose of this paper is to evaluate skilled labor demand determinants in Brazil, considering alternatives explanations: changes in relative wages, non-homothetic…

Abstract

Purpose

The purpose of this paper is to evaluate skilled labor demand determinants in Brazil, considering alternatives explanations: changes in relative wages, non-homothetic technology output growth and skill-biased technical change.

Design/methodology/approach

This study relies on a rich and unique matched employer-employee data set for manufacturing sector, from 1996 to 2003. The analysis considers a translog functional form labor demand system estimated using seemingly unrelated regression and instrumental variables to control for possible measurement errors and wages and output endogeneity.

Findings

The demand function estimates suggest that: labor demand underlying technology is non-homothetic, research and development investment is biased toward skilled workers, the non-homothetic technology is not skill biased so output changes contributed positively for skilled labor increase, relative wages played a significant role and international trade has little explanatory power explaining labor demand shifts.

Originality/value

This is the first paper that considers alternative explanations for the increase in the demand of skilled workers for manufacturing in Brazil simultaneously: changes in relative wages, output changes with non-homothetic technology, skill-biased technical change and, to a lesser extent, international trade. The study challenges current empirical evidence that considers trade and trade liberalization as the main factor explaining labor demand shifts.

Details

Journal of Economic Studies, vol. 44 no. 2
Type: Research Article
ISSN: 0144-3585

Keywords

Book part
Publication date: 28 March 2006

Michael Ben-Gad

I construct a set of dynamic macroeconomic models to analyze the effect of unskilled immigration on wage inequality. The immigrants or their descendants do not remain…

Abstract

I construct a set of dynamic macroeconomic models to analyze the effect of unskilled immigration on wage inequality. The immigrants or their descendants do not remain unskilled – over time they may approach or exceed the general level of educational attainment. In the baseline model, the economy's capital supply is determined endogenously by the savings behavior of infinite-lived dynasties, and I also consider models in which the supply of capital is perfectly elastic, or exogenously determined. I derive a simple formula that determines the time discounted value of the skill premium enjoyed by college-educated workers following a change in the rate of immigration for unskilled workers, or a change in the degree or rate at which unskilled immigrants become skilled. I compare the calculations of the skill premiums to data from the US Current Population Survey to determine the long-run effect of different immigrant groups on wage inequality in the United States.

Details

The Economics of Immigration and Social Diversity
Type: Book
ISBN: 978-1-84950-390-7

Book part
Publication date: 2 June 2008

Sarbajit Chaudhuri and Shigemi Yabuuchi

The existing theoretical literature does not adequately take into consideration the existence of non-traded goods and the nature of capital mobility between the traded and

Abstract

The existing theoretical literature does not adequately take into consideration the existence of non-traded goods and the nature of capital mobility between the traded and the non-traded sectors in analyzing the consequences of liberalized investment policies on the relative wage inequality in the developing countries. The present chapter purports to fill in this gap by using two four-sector general equilibrium models reasonable for a developing economy. We have examined the outcome of foreign capital inflows on wage inequality when non-traded goods are intermediate inputs and final goods. Appropriate policy recommendations for improving the wage inequality have also been made.

Details

Contemporary and Emerging Issues in Trade Theory and Policy
Type: Book
ISBN: 978-1-84950-541-3

Keywords

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