Essays on Wage Inequality and Poverty

This thesis sets out to study the impact of growth and technological development on inequality. This thesis focuses on two types of inequality, the skill premium (wage inequality between skilled and unskilled labour) and the poverty. First, this thesis sets out to analyze the interaction between the skill premium and the growth and development in England in the very long run (circa 1329-1660); Second, it studies the poverty-reduction effect of the interaction between institutional development and remittances. These two topics are covered by Chapters 2, 3 and 4 respectively. Chapter 2 studies the evolution of the skill premium in England from 1329 to 1660. It develops a unified model that accounts for the growth and development in the historical period that ranging from late medieval ear to industrial revolution. This model unveils insightful linkage between the historical development in this period and the skill premium. It shows that the growth of the relative abundance of physical capital to human capital from an initally low level to a sufficiently high level, which is triggered by demographic change and the growth of agricultural productivity, brings about the decline of the skill premiumfrom1329 to 1450s, and the stabilization of the skill premiumafterwards. On the basis of the analytical findings in Chapter 2, Chapter 3 brings the proposed unified model of growth into data. Through calibration and simulation, it shows that the with the simulated skill premium declining to a low and stable level, the simulated GDP per capita grows to a high and stable level and the simulated primary sector labour share declines from a high level at the beginning to a low level in the end, both of which are consistent with the actual data. The simulated skill premium, GDP per capita and the primary sector labour share jointly show the gradual ‘modernization” of the English economy takes place well before the industrial revolution. Chapter 4 analyzes the impact of institutional development of the povertyreduction effect of remittances. Considering remittances and remittances’ facilitating effect on financial development, it shows that institutional development attract more remittances. This then reduces credit market imperfection and enables a larger fraction of the population to invest in human capital and escape poverty trap, which results in the reduction of poverty. This chapter is the first to analytically study the change in poverty in response to remittances and institutional development.