Subsidy Policies of Agricultural Producer Service and Wage Inequality in Developing Economy

Abstract

This study examines the effects of subsidy policies of agricultural producer service on wage disparity while taking into account the modernization of small-scale farming in developing nations. Due to small-scale operations, agriculture needs an intermediary sector-an agricultural producer service sector-to help modernization by facilitating the entry of non-agricultural intermediate inputs. Main conclusions are wage subsidy policy on skilled labor expands it in the short term. In the long run, the results of wage subsidy of skilled labor depend on the elasticity of substitution among varieties in service sector. When the elasticity of substitution is relatively small (large), subsiding skilled labor narrows down (expands) the wage inequality.