Abstract
This paper establishes a three-sector general equilibrium model to explore how rural property rights influence urban unemployment, skilled-unskilled wage inequality and social welfare in developing countries. Strengthened rural property rights generate the rent-gaining effect and the productivity-enhancing effect, and the interaction of these two effects determines the changes of urban unemployment, skilled-unskilled wage inequality and social welfare. In addition to the aforementioned two effects, the agricultural sector’s wage elasticity of unskilled labor demand also matters for the change of wage inequality.
Acknowledgement
We would like to thank the editor Mariapia Mendola for her sincere encouragement and Yu Zhou for his helpful assistances. We are very grateful to two anonymous reviewers for their insightful comments and detailed suggestions on improving this paper. We also acknowledge the financial support provided by the Program for New Century Excellent Talents in University, the Fundamental Research Funds for the Central Universities, and the Collaborative Innovation Center for China Economy. Any remaining errors are ours.
Appendix A. Proof of Lemma 1
Total differentiation of eqs (8)–(10) and (12) yields the following reduced linear equations system:
The determinant of the coefficient matrix of the above equations system is denoted as
Using the Cramer’s rule to solve the above linear equations system, we can get:
Hence, sign (
Appendix B. Proof of Proposition 2
As suggested by the analysis of Proposition 1, the equilibrium value of
Then, we have
Differentiating
From the reduced linear equations system in Appendix A and eq. (12), we have:
Hence,
When
When
Appendix C. Proof of Proposition 3
Totally differentiating eq. (20) with respect to
From the reduced linear equations system in Appendix A and eq. (11), we have:
Hence,
where
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