ABSTRACT
This chapter makes an attempt to explain how different interconnected measures of globalisation (namely, tariff reform, agricultural trade liberalisation and capital account liberalisation), a land augmenting technological progress and adverse supply shocks arising due to COVID-19, play a major role not only in determining skilled–unskilled wage disparity and unemployment of skilled labour but also income distribution in general. In so doing, we construct a three-sector general equilibrium framework. We use the “luxury unemployment hypothesis” to explain the unemployment of skilled labour who earns an institutionally given fixed wage. We obtain that tariff liberalisation widens the skilled–unskilled wage gap and leaves unemployment of skilled labour unchanged. Agricultural trade liberalisation turns the income distribution in favour of the landed gentry. Capital account liberalisation reduces the unemployment of skilled labour without any effect on income distribution, while land-augmenting technological progress reduces the wage gap and turns the income distribution against the landed gentry. We use this model to analyse the adverse impacts of the pandemic crises. We introduce real government expenditure and an efficiency parameter for unskilled labour in order to explain the effects of an expansionary fiscal policy and “Covid Long Haulers” which affect the unskilled workers. While discussing the effects of expansionary fiscal policy (which is financed by lump-sum tax), what we get is the possibility of an increase in unemployment of skilled labour. The findings of this chapter have a specific accent on policy-making for a developing country like India.
