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Domestic Income Transfer in an Open Dual Economy

  • Makoto TawadaEmail author
  • Ling Qi
Chapter
Part of the New Frontiers in Regional Science: Asian Perspectives book series (NFRSASIPER, volume 26)

Abstract

This chapter investigates the welfare effects of an income transfer from urban manufacturing workers to rural agricultural workers in an open dual economy where the urban manufacturing wage is fixed under the minimum wage legislation. We show that the utility of a rural worker may be reduced by the transfer if capital is specific, but such a transfer paradox never appears if capital is mobile between industries. We also derive the result that the transfer causes urban unemployment to decrease in the sector-specific capital case but possibly increase in the mobile capital case.

Keywords

Dual open economy Minimum wage legislation Transfer paradox Labor income disparity Walrasian price adjustment Harris−Todaro model 

Notes

Acknowledgment

We are grateful to Professors Xiaochun Li and Dongpeng Liu of Nanjing University, Professor Binh Tran-Nam of University of New South Wales, and, in particular, an anonymous reviewer for their valuable comments. We also appreciate Professors Kojun Hamada of Niigata University and Mitsuyoshi Yanagihara of Nagoya University for their useful discussions.

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Copyright information

© Springer Nature Singapore Pte Ltd. 2018

Authors and Affiliations

  1. 1.Faculty of EconomicsAichi Gakuin UniversityNagoyaJapan
  2. 2.China Institute for Actuarial ScienceCentral University of Finance and EconomicsBeijingChina

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