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

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  • Yoshinori Kurokawa

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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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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 46 (2011)
Issue (Month): 2 (February)
Pages: 297-325

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Handle: RePEc:spr:joecth:v:46:y:2011:i:2:p:297-325

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Keywords: Trade; Wage inequality; Variety-skill complementarity; Extensive margin; F12; F16;

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Citations

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Cited by:
  1. Toshiaki Takahashi & Hajime Takatsuka & Dao-Zhi Zeng, 2013. "Spatial inequality, globalization, and footloose capital," Economic Theory, Springer, vol. 53(1), pages 213-238, May.
  2. Yoshinori Kurokawa, 2009. "Is a Skill Intensity Reversal a Mere Theoretical Curiosum? Evidence from the U.S. and Mexico," Tsukuba Economics Working Papers 2009-010, Economics, Graduate School of Humanities and Social Sciences, University of Tsukuba.
  3. Manoj Atolia & Yoshinori Kurokawa, 2008. "Variety Trade and Skill Premium in a Calibrated General Equilibrium Model: The Case of Mexico," Working Papers wp2008_11_03, Department of Economics, Florida State University.
  4. Nathalie Chusseau & Michel Dumont, 2012. "Growing income inequalities in advanced countries," Working Papers 260, ECINEQ, Society for the Study of Economic Inequality.
  5. Chingunjav Amarsanaa & Yoshinori Kurokawa, 2011. "The Extensive Margin of International Trade in a Transition Economy: The Case of Mongolia," Tsukuba Economics Working Papers 2011-005, Economics, Graduate School of Humanities and Social Sciences, University of Tsukuba.
  6. Andrea Vaona, 2013. "Countervailing inequality effects of globalization and renewable energy generation in Argentina," Working Papers 12/2013, University of Verona, Department of Economics.
  7. Yoshinori Kurokawa & Jiaren Pang & Yao Tang, 2013. "Exchange Rate Regimes and Nominal Wage Comovements in a Dynamic Ricardian Model," Tsukuba Economics Working Papers 2013-005, Economics, Graduate School of Humanities and Social Sciences, University of Tsukuba.
  8. Nathalie Chusseau & Michel Dumont, 2012. "Growing Income Inequalities in Advanced," Working Papers hal-00993359, HAL.

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