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Technology, unemployment, and relative wages in a global economy

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  • Davis, Donald R.

Abstract

Arguably the most important development in recent decades in US factor markets is the decline in the relative wage of the unskilled. By contrast, in Europe it is undoubtedly the rise and persistence of unemployment. Technology has been identified as a key reason for the rising US wage inequality, while labor market rigidities are often cited as a key reason for European unemployment. This paper seeks to provide a unified account of these major factor market developments. It models the impact of technical change on relative wages and unemployment in a world in which one country has flexible and the other rigid labor market institutions. The results depart significantly but sensibly from what one would expect in a fully flexible wage world. A few stylized facts help to narrow the field to a few candidates to account for these factor market developments.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 42 (1998)
Issue (Month): 9 (November)
Pages: 1613-1633

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Handle: RePEc:eee:eecrev:v:42:y:1998:i:9:p:1613-1633

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  1. Edward E. Leamer, 1994. "Trade, Wages and Revolving Door Ideas," NBER Working Papers 4716, National Bureau of Economic Research, Inc.
  2. Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 327-377.
  3. Lawrence F. Katz & Gary W. Loveman & David G. Blanchflower, 1993. "A Comparison of Changes in the Structure of Wages," NBER Working Papers 4297, National Bureau of Economic Research, Inc.
  4. Donald R. Davis, 1996. "Does European Unemployment Prop Up American Wages?," Harvard Institute of Economic Research Working Papers 1752, Harvard - Institute of Economic Research.
  5. Eli Berman & John Bound & Stephen Machin, 1997. "Implications of Skill-Biased Technological Change: International Evidence," Boston University - Institute for Economic Development, Boston University, Institute for Economic Development 78, Boston University, Institute for Economic Development.
  6. Berman, Eli & Bound, John & Griliches, Zvi, 1994. "Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(2), pages 367-97, May.
  7. Brecher, Richard A, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 88(1), pages 98-116, February.
  8. Mussa, Michael, 1979. "The two-sector model in terms of its dual : A geometric exposition," Journal of International Economics, Elsevier, Elsevier, vol. 9(4), pages 513-526, November.
  9. David Blanchflower & L Katz & G Loveman, 1993. "A Comparison of Changes in the Structure of Wages in Four OECD Countries," CEP Discussion Papers dp0144, Centre for Economic Performance, LSE.
  10. Eli Berman & John Bound & Zvi Griliches, 1993. "Changes in the Demand for Skilled Labor within U.S. Manufacturing Industries: Evidence from the Annual Survey of Manufacturing," NBER Working Papers 4255, National Bureau of Economic Research, Inc.
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