This paper will set up a general equilibrium model with a distorted labour market to explore the effects of an environmental tax and union bargaining power on formal employment and the informal competitive wage. We find that when the government raises the environmental tax, both formal employment and informal competitive wage would fall. In addition, we confirm that a policy of labour market reform would increase both formal employment and the informal competitive wage.

This paper will set up a dynamic adjustment system of a specific-factor model of a closed Harris and Todaros’ (1970) economy to explore the effects of environmental tax on return migration meaning that labor moves back from the manufacturing sector to the agricultural sector. We find that when the government raises environmental tax, return migration would happen and the urban unemployment would decrease.

This paper will setup a trade model to explore the impact of the diversity of talent distribution and the technology difference on the pattern of trade (POT) and income inequality of an economy. We find that not only the diversity effect but also the technology effect can matter for the pattern of POT. We demonstrate that, in the free-trade equilibrium, if the technology effect dominates the diversity effect then the country with a more (less) diverse distribution of talent may export the goods produced by a technology with supermodularity (submodularity). In addition, we prove that the relative technology difference will affect income inequality. If the technological advance for the submodular sector S is better than for the supermodular sector C, then income inequality would increase.

To analyse the impact of the diversity of talent distribution on the equilibrium growth rate, this paper develops an equilibrium growth model with heterogeneous labor. We show that the growth effect after free trade depends on the diversity effect and the trade effect. In addition, we prove that if talent diversity is great enough then opening trade will stimulate economic growth. In contrast, if talent diversity is small enough then trade openness is detrimental to economic growth.

Consider a small open Harris and Todaro's model. This paper analyzes the impact of the policy of environmental protection on skilled–unskilled wage inequality. We find that, in the economy with urban unemployment, if the elasticity of substitution between unskilled labor and pollution in the urban low‐skill sector is small (large) enough then a rise in the pollution tax will expand (narrow down) skilled–unskilled wage inequality. In addition, we prove that, in the economy with full employment, a rise in the pollution tax will raise the skilled–unskilled wage inequality, if the elasticity of substitution between unskilled labor and pollution is larger than that between capital and pollution in the urban low‐skill sector.