AGRARIAN EFFICIENCY WAGES IN A DUAL ECONOMY

Suppose that the long-term efficiency of agricultural workers is sensi tive to current wages via consumption. Also assume that urban wages ar e higher, migration is costly, and agricultural workers do not have ac cess to credit. Then changes in components of the urban wage structure effect components of the rural wage distribution in a selective and p erverse fashion. Intuitively, a higher rural wage facilitates saving a nd thus makes it easier for workers to migrate to the urban sector. Bu t this deprives the rural employer of long-term efficiency gains which motivates the higher wage payment. Thus when urban wages increase and migration becomes correspondingly more attractive, rural employers re duce their wage offers. This intuition is generalised by considering d iverse worker types and various initial wage distributions.