Asymmetric Impact of the Pandemic on Skilled and Unskilled Wages and Wage Inequality

The COVID-19 pandemic, an initial health catastrophe, has predominantly become an economic and labour market shock with unequal impacts on wages and wage disparities in the economies. We developed a general equilibrium model with three traded sectors to highlight the asymmetric changes in the skilled and unskilled workers’ wage gap within the economies during the pandemic. Our findings highlight that skilled–unskilled wage inequality widens when the manufacturing sector prices decline at the same rate or less than the decline in the prices of goods produced in the informal sector. However, the effect on skilled–unskilled wage differences could be in either direction depending on the changes in informal wages when the manufacturing sector is hit harder than the informal sector during the pandemic. JEL: J31, J46, D50, L80