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Hamid Beladi, Chi-chur Chao and Daniel Hollas
 
''Fair wages, Urban Unemployment and Welfare in a Developing Economy''
( 2011, Vol. 31 No.1 )
 
 
This paper studies the impact of pay fairness on factor income and social welfare in a developing economy with both modern urban and traditional rural sectors. When urban workers become aware of income fairness, they use the expected urban wage and weighted average returns to capitalists as their reference pay. This perception of fairness raises the urban wage and enlarges the wage gap between the urban and rural sectors. The ensuing above market-clearing wage rate causes urban unemployment. Greater wage fairness worsens urban unemployment and lowers social welfare in the economy.
 
 
Keywords: Fair wage, wage inequality, urban unemployment, welfare
JEL: R0 - Urban, Rural, and Regional Economics: General
O1 - Economic Development: General
 
Manuscript Received : Nov 03 2010 Manuscript Accepted : Jan 11 2011

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