Wage Differentials and Employment in a Two-Sector Model with a Dual Labour Market

摘要

The concept of a dual labor market is analyzed in a two-sector general equilibrium model. The primary sector pays efficiency wages, while there is no connection between efficiency and the relative wage level in the secondary sector. The two sectors produce different goods. Capital is assumed sector-specific. The log-linear version of the model is solved analytically under the condition of wage flexibility and for different forms of wage rigidity with respect to sector 2. The results may be used to explain observed differences in wage and employment distributions in the U.S. and Europe.