The impact of subsidy policies for agricultural producer services on the wage inequality within rural areas

Conventional theoretical studies posit that the flexible wages should be equal between two formal sectors. However, when focusing on the process of agricultural modernization in developing countries, a disparity in wages between the modern and traditional agricultural sector is observed. Nevertheless, current theoretical research has not addressed the issue of disparity in flexibility wages for homogeneous labor between these two sectors. Additionally, agricultural producer services play a crucial role in enhancing agricultural production efficiency and driving agricultural modernization. Considering the existence of a dualistic agricultural background in real life, this paper constructs a three-sector general equilibrium model that includes the agricultural producer services sector and examines the impact of government services subsidy policies on wage inequality between modern and traditional agriculture. The study reveals that, in the short term, government price subsidy policies favor the agricultural producer services sector and can expand the wage inequality within rural areas. In the long term, they could potentially reduce the wage inequality.