Skills Distribution, Migration and Wage Differences in Pure Service-Exchange Economy

18 Pages Posted: 15 Jun 2008

See all articles by Abhay Gupta

Abhay Gupta

University of British Columbia (UBC); Empirical Foresights

Date Written: June, 2007

Abstract

This paper considers an economy with skilled agents exchanging their services. Using Cobb-Douglas preferences, the paper shows that there exists an optimal (average welfare maximizing) skills' distribution. This optimal distribution is independent of productivity and is welfare equalizing. If the skill-distribution is not optimal, then some agents are better-off than others. In such a scenario, migration in some sectors is average-welfare improving while inviting skilled-agents in others reduces average welfare. "Productivity increase of worse-o sector" without changing the overall skills' composition of economy increases the wage gap.

JEL Classification: F22, L84, J31, J24, D51

Suggested Citation

Gupta, Abhay, Skills Distribution, Migration and Wage Differences in Pure Service-Exchange Economy (June, 2007). Available at SSRN: https://ssrn.com/abstract=1145828 or http://dx.doi.org/10.2139/ssrn.1145828

Abhay Gupta (Contact Author)

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