Investment and wage gap in India: a general equilibrium analysis

Abstract

Purpose This paper aims to theoretically find out whether investments could close the formal-informal wage gap in India. Design/methodology/approach The paper builds a general equilibrium model of a developing economy with a large informal sector and a capital-intensive formal sector with sector-specific capital and incorporates endogenous demand. Findings With homothetic preferences, a small initial wage premium and elastic relative demand, investment in the formal sector is likely to close the wage gap, but the gap persists with non-homothetic preferences. However, investment in the informal sector is unlikely to close the wage gap with either type of preferences. Originality/value Though labour market distortions in developing economies leading to a formal-informal wage gap are well-documented in the development literature, little attention has been given to the question of whether such a gap would close over time.

Does Informal Sector Suitable for Female Labor?

“…Whereas education is one of the consideration factors for determining salary. Women who invest in higher education will get a bonus in the form of a high level of wages as well (Deidda & Paolini, 2013;Chattopadhyay, 2018) in long term, the huge amount of women who get higher wages would help to reduce the poverty (Fajansa, 2008). In general, education has an important role in the participation of the female labor force through the skills possessed (Mattos & Ogura, 2009;Akhter & Ward, 2009;Göksel, 2013;Kasseeah & Tandrayen-Ragoobur, 2016).…”

Time zone difference, skill formation and corrupt informal sector: the role of virtual trade

“…We thank the anonymous referee for suggesting us to provide the determination process. There are some other interesting papers such asLingens (2003),Bhattacharyya and Gupta (2016),Chattopadhyay (2018), etc., that consider the determination of wage through bargaining.…”