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Rural public investment and wage inequality under small‐scale agriculture modernization

Year: 2024

Type: article

Abstract: Increasing rural public investment is crucial for sustainable rural development and can be an effective approach for reducing inequality. However, wage inequality has increased in some developing countries (e.g., China) after increasing fiscal support. This study explores how rural public investment influences skilled‐unskilled wage inequality by incorporating agricultural modernization in small‐scale agriculture. Agricultural modernization refers to introducing modern non‐agricultural intermediate inputs in agriculture. Owing to the small scale of agriculture, an intermediate sector, the agricultural producer service sector, is required to facilitate this process. We establish a three‐sector general equilibrium model with a two‐layer vertical production structure and investigate the effects of increased public investment in rural areas on the wage inequality between skilled and unskilled labour. The theoretical results show that while more rural public investment raises the wages of both skilled and unskilled labour, it also increases wage inequality. Overall, this study explains why inequality widens as rural public investment increases.

Source: Asian-Pacific Economic Literature

DOI: 10.1111/apel.12436

Authors: Dianshuang Wang, Luhan Ji, Zixin Hu, Lian Hu

Institutions: Anhui University of Finance and Economics, University of International Business and Economics

Language: English

Topic: Economic Theory and Policy

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDGs: Decent work and economic growth, Reduced inequalities, No poverty

Open Access status: bronze

Funders: Ministry of Education, India, Natural Science Foundation of Anhui Province