Effect of International Labour Mobility on Wage Gap in Presence of Non Traded Agricultural Sector: A Theoretical Analysis

The purpose of the present paper is to explain how labour market mobility can affect wage gap in an emerging market economy. For this purpose, we construct a three sector general equilibrium model. There are two manufacturing sectors in this paper. One manufacturing sector is import competing in nature whereas the other is export oriented in nature. The agricultural sector is considered to be non traded in nature. In the present paper capital is assumed to be mobile across three sectors of production. Skilled labour is used in production of the export oriented manufacturing sector. Unskilled labour is used in non traded agricultural sector and the import competing manufacturing sector. In the present paper we have shown that international labour mobility may decrease wage gap between skilled and unskilled labour.