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Transportation cost reducing technological change and wages inequalities

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  • Cheng, Cheng
  • Wang, Xiaobing

Abstract

This paper provides a new theory that is able to explain both domestic and international wage inequalities. The main argument is that there are broadly two types of technological change: productivity enhancing technological change and transportation cost reducing technological changes. The former increases labour productivity in the country where it is generated from. The latter reduces transportation costs internationally, which lowers the price for imported goods and increases the demand for them. This paper incorporates these technological changes into an open trade economy, where, we assume, there are two countries (i.e. home and foreign) and each country has two types of labour (i.e. skilled and unskilled). The results show that the wage inequality within one country is determined by its own combination of the two different technological changes. Both skilled and unskilled international wage inequalities are determined by the combination of the two different technological changes in two countries simultaneously.

Suggested Citation

  • Cheng, Cheng & Wang, Xiaobing, 2021. "Transportation cost reducing technological change and wages inequalities," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 600-611.
    • Handle: RePEc:eee:streco:v:59:y:2021:i:c:p:600-611
    DOI: 10.1016/j.strueco.2021.10.008
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    More about this item

    Keywords

    Technological change; International trade; Wage inequality;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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