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Variety-skill complementarity: a simple resolution of the trade-wage inequality anomaly

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  • Yoshinori Kurokawa

Abstract

The Stolper-Samuelson theorem predicts that the relative wage of high-skilled to low-skilled labor will increase in the high-skill abundant U.S. but decrease in low-skill abundant Mexico after trade liberalization, while it actually began to rise in both countries in the late 1980s. We present a simple resolution of this "trade-wage inequality anomaly" in a model of variety trade. Variety trade increases the variety of intermediate goods used by the final good. If the varieties and high-skilled labor are complements, the skill premium rises in both countries. This linking of imports of new foreign varieties?---the extensive margin?---to wage inequality is compatible with evidence. Our numerical examples illustrate that small amounts of variety trade can produce a signi?ficant increase in relative wage.
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  • Yoshinori Kurokawa, 2011. "Variety-skill complementarity: a simple resolution of the trade-wage inequality anomaly," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(2), pages 297-325, February.
    • Handle: RePEc:spr:joecth:v:46:y:2011:i:2:p:297-325
    DOI: 10.1007/s00199-010-0536-z
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    5. Atolia, Manoj & Kurokawa, Yoshinori, 2016. "The impact of trade margins on the skill premium: Evidence from Mexico," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 895-915.
    6. Andrea Waddle, 2021. "Trade, Technological Change, And Wage Inequality: The Case Of Mexico," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(1), pages 243-276, February.
    7. Arindam Banik & Pradip K. Bhaumik, 2018. "The Effects of Exogenous Technological Change on Wage Inequality in Rural India," Global Business Review, International Management Institute, vol. 19(6), pages 1515-1537, December.
    8. Yoshinori Kurokawa, 2014. "A Simple Model of Competition Policies, Trade, and the Skill Premium," Tsukuba Economics Working Papers 2014-002, Faculty of Humanities and Social Sciences, University of Tsukuba, revised Apr 2020.
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    10. Saito Tetsuya, 2012. "How Do We Get Cobb-Douglas and Leontief Functions from CES Function: A Lecture Note on Discrete and Continuum Differentiated Object Models," Journal of Industrial Organization Education, De Gruyter, vol. 6(1), pages 1-13, December.
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    13. Nathalie Chusseau & Michel Dumont, 2012. "Growing Income Inequalities in Advanced," Working Papers hal-00993359, HAL.
    14. Takeuchi, Fumihide, 2023. "Intermediate goods-skill complementarity and income distribution," MPRA Paper 116372, University Library of Munich, Germany.
    15. Nathalie Chusseau & Michel Dumont, 2013. "Growing Income Inequalities in Advanced Countries," Palgrave Macmillan Books, in: Joël Hellier & Nathalie Chusseau (ed.), Growing Income Inequalities, chapter 1, pages 13-47, Palgrave Macmillan.
    16. Andrea Vaona, 2013. "Countervailing inequality effects of globalization and renewable energy generation in Argentina," Working Papers 12/2013, University of Verona, Department of Economics.
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    18. Collin Rabe & Andrea Waddle, 2018. "Leaving NAFTA:Implications for Inequality," 2018 Meeting Papers 831, Society for Economic Dynamics.

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    More about this item

    Keywords

    Trade; Wage inequality; Variety-skill complementarity; Extensive margin; F12; F16;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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