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Factor mobility, the elasticity of substitution and interregional wage differentials

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Abstract

The analysis of non-neutral technical change has emphasized the element of factor intensity while ignoring the impact of changes in the elasticity of factor substitution on interregional wage differentials. This paper provides a formalized treatment of changes in the elasticity of factor substitution on interregional wage-rate differentials in the case where labour mobility is present. The paper demonstrates that changes in this element of non-neutral technical change (unlike changes in the factor intensity element) will have differing impacts on regional wage-rates depending on the existing labour-capital ratio in the region. The paper concludes by relating changes in factor intensity to the elasticity of factor substitution to demonstrate the interaction of both elements on non-neutral technical change on regional wage rates.

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Authors and Affiliations

  1. Department of Economics, University of Alberta Edmonton, T6G 2H4, Alberta, Canada

    Sten E. Drugge

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  1. Sten E. Drugge
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Drugge, S.E. Factor mobility, the elasticity of substitution and interregional wage differentials. Ann Reg Sci 19, 34–39 (1985). https://doi.org/10.1007/BF01294829

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  • DOI: https://doi.org/10.1007/BF01294829

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