Wage traps

The project explores the conditions under which wage traps, a specific form of labour market failure that appears feasible near subsistence-level labour incomes, may occur and to what extent wage traps may contribute to insufficient development dynamics in poor countries and to a widening of the income distribution in developed economies. In a first step, a partial analysis of wage-trapped labour markets is attempted. In a second step, wage-trapped labour markets will be integrated into conventional and endogenous growth models, and the potential for this type of labour market failure to explain poverty traps will be explored.