Essay
Suppose that, for example, in India, a minimum wage is instituted in the modern sector above the market-clearing wage, while the rural traditional wage is market determined at a lower level than in the modern sector.
a.Describe the impact of this policy on the rural labor force, urban unemployment, and the rural wage.
b.Will the modern-sector wage be equal to the traditional-sector wage after markets equilibrate through migration? Explain.
c.What effect might moving costs have on the equilibrium you described in Part (b)?
d. What effect might the introduction of factories to rural areas have on the equilibrium you described in Part (b)?
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