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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.)

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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Bibliographic Info

Paper provided by KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy in its series KITeS 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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References

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