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Labour Mobility, Capital-Skill Complementarity and the Redistributive Effects of Trade Integration

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Author Info
Carlo Devillanova (Bocconi University, Milano, Italy.)
Michele Di Maio (University of Macerata, Italy.)
Pietro Vertova (University of Bergamo, Italy.)

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Abstract

This paper addresses the role of mobility costs in shaping the effects of trade integration on wage inequality and welfare. We present a three-factor, two-sector model in which the production technology exhibits capital-skill complementarity and the cost of moving across sectors differs between unskilled and skilled workers. We consider a proportional tax on skilled workers’ wage that is used to finance a re-training program to reduce the mobility costs of unskilled workers. We show that if the training program is sufficiently effective, a positive tax rate can both reduce wage inequalities and reinforce the welfare-enhancing effects of trade integration. In addition we show that, even when the public programme entails some welfare losses, it can make trade integration Pareto superior with respect to autarky.

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Publisher Info
Paper provided by CESPRI, Centre for Research on Innovation and Internationalisation, Universita' Bocconi, Milano, Italy in its series CESPRI Working Papers with number 188.

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Length: pages 25
Date of creation: Nov 2006
Date of revision: Nov 2006
Handle: RePEc:cri:cespri:wp188

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Related research
Keywords: Capital-Skill Complementarity; Intersectoral Labour Mobility; Wage In-equality; Trade Integration.;

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Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
R23 - Urban, Rural, and Regional Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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References listed on IDEAS
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  2. Per Krusell & Lee E. Ohanian & Jose-Victor Rios-Rull & Giovanni L. Violante, 1997. "Capital-skill complementarity and inequality: a macroeconomic analysis," Staff Report 239, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  3. Jorge Saba Arbache & Andy Dickerson & Francis Green, 2004. "Trade Liberalisation and Wages in Developing Countries," Economic Journal, Royal Economic Society, vol. 114(493), pages F73-F96, 02. [Downloadable!] (restricted)
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  6. Wacziarg, Romain & Wallack, Jessica Seddon, 2004. "Trade liberalization and intersectoral labor movements," Journal of International Economics, Elsevier, vol. 64(2), pages 411-439, December. [Downloadable!] (restricted)
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  7. Verhoogen, Eric A., 2007. "Trade, Quality Upgrading and Wage Inequality in the Mexican Manufacturing Sector," CEPR Discussion Papers 6385, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  12. Aghion, Philippe & Howitt, Peter & Violante, Giovanni L, 2002. " General Purpose Technology and Wage Inequality," Journal of Economic Growth, Springer, vol. 7(4), pages 315-45, December. [Downloadable!] (restricted)
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  17. Daron Acemoglu, 2003. "Patterns of Skill Premia," Review of Economic Studies, Blackwell Publishing, vol. 70(2), pages 199-230, 04. [Downloadable!] (restricted)
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  18. Ann P. Bartel & Nachum Sicherman, 1999. "Technological Change and Wages: An Interindustry Analysis," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 285-325, April. [Downloadable!] (restricted)
    Other versions:
  19. Elisabetta Magnani, 2001. "Risk of labor displacement and cross-industry labor mobility," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 54(3), pages 593-610, April.
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