Public infrastructure provision and skilled-unskilled wage inequality in developing countries

In this paper, we develop several static three-sector general equilibrium models with diverse labor market structures to investigate the effects of government provision of public infrastructure on the skilled-unskilled wage inequality in developing countries. The basic full employment model shows that the production sectors' relative dependence on the public infrastructure provision plays a crucial role in determining the skilled-unskilled wage inequality. Different relative dependences on public infrastructure may even result in opposite changes in the skilled-unskilled wage inequality. The above results are robust even when we extend the basic full employment model to three fundamentally different cases.