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Human capital, unemployment, and relative wages in a global economy

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  • Donald R. Davis
  • Trevor A. Reeve

Abstract

This paper develops a simple framework for examining human capital accumulation, unemployment, and relative wages in a global economy. It builds on the models of Davis (1998a, b) of trade between a flexible-wage America and a rigid-wage Europe. To this it adds a model of human capital accumulation based on Findlay and Kierzkowski (1983). A variety of comparative statics are examined, including changes in educational capital and population, entry of new countries to the trading world, technical change, and a productivity slowdown. We derive the consequences for the skilled-to unskilled wage gap, unemployment, and skill composition.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 659.

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Date of creation: 2000
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Handle: RePEc:fip:fedgif:659

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Keywords: International trade ; Human capital ; Unemployment ; Wages;

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References

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  1. Eli Berman & John Bound & Stephen Machin, 1997. "Implications of Skill-Biased Technological Change: International Evidence," NBER Working Papers 6166, National Bureau of Economic Research, Inc.
  2. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  3. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1991. "Multiple free trade equilibria in micro models of unemployment," Journal of International Economics, Elsevier, vol. 31(1-2), pages 157-169, August.
  4. Hoon, Hian Teck, 1991. "Comparative advantage and the equilibrium rate of unemployment," Economics Letters, Elsevier, vol. 37(3), pages 299-304, November.
  5. Flug, Karnit & Galor, Oded, 1986. "Minimum Wage in a General Equilibrium Model of International Trade and Human Capital," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 149-64, February.
  6. Brecher, Richard A, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 98-116, February.
  7. Daron Acemoglu, 1999. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," American Economic Review, American Economic Association, vol. 89(5), pages 1259-1278, December.
  8. Davis, Donald R, 1998. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade," American Economic Review, American Economic Association, vol. 88(3), pages 478-94, June.
  9. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-42, March.
  10. Donald R. Davis, 1996. "Does European Unemployment Prop Up American Wages?," Harvard Institute of Economic Research Working Papers 1752, Harvard - Institute of Economic Research.
  11. Davis, Donald R., 1998. "Technology, unemployment, and relative wages in a global economy," European Economic Review, Elsevier, vol. 42(9), pages 1613-1633, November.
  12. Richard B. Freeman & Lawrence F. Katz, 1995. "Differences and Changes in Wage Structures," NBER Books, National Bureau of Economic Research, Inc, number free95-1.
  13. Sanyal, Kalyan K & Jones, Ronald W, 1982. "The Theory of Trade in Middle Products," American Economic Review, American Economic Association, vol. 72(1), pages 16-31, March.
  14. Bertola, Giuseppe & Ichino, Andrea, 1995. "Wage Inequality and Unemployment: US vs Europe," CEPR Discussion Papers 1186, C.E.P.R. Discussion Papers.
  15. Findlay, Ronald & Kierzkowski, Henryk, 1983. "International Trade and Human Capital: A Simple General Equilibrium Model," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 957-78, December.
  16. Berman, Eli & Bound, John & Griliches, Zvi, 1994. "Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 367-97, May.
  17. Fernandez, Raquel, 1992. "Terms-of-Trade Uncertainty, Incomplete Markets and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 881-94, November.
  18. Brecher, Richard A & Long, Ngo Van, 1989. "Trade Unions in an Open Economy: A General Equilibrium Analysis," The Economic Record, The Economic Society of Australia, vol. 65(190), pages 234-39, September.
  19. Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 327-377.
  20. Paul Krugman & Robert Lawrence, 1993. "Trade, Jobs, and Wages," NBER Working Papers 4478, National Bureau of Economic Research, Inc.
  21. Melvin, James R, 1969. "Intermediate Goods, the Production Possibility Curve, and Gains from Trade," The Quarterly Journal of Economics, MIT Press, vol. 83(1), pages 141-51, February.
  22. Edward E. Leamer, 1996. "In Search of Stolper-Samuelson Effects on U.S. Wages," NBER Working Papers 5427, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Ann L. Owen, 1999. "International Trade and the Accumulation of Human Capital," Southern Economic Journal, Southern Economic Association, vol. 66(1), pages 61-81, July.
  2. Yose Rizal Damuri & Raymond Atje & Arya B. Gaduh, 2006. "Integration and Trade Specialization in East Asia," CSIS Economics Working Paper Series WPE094, Centre for Strategic and International Studies, Jakarta, Indonesia.
  3. Saccone Donatella, 2008. "Economic openness, skill demand and skill supply in three archetypes of developing countries: a theoretical and empirical investigation," Department of Economics and Statistics Cognetti de Martiis. Working Papers 200813, University of Turin.
  4. Robert Stehrer, 2004. "Can Trade Explain the Sector Bias of Skill-biased Technical Change?," wiiw Working Papers 30, The Vienna Institute for International Economic Studies, wiiw.
  5. Sener, Fuat, 2001. "Schumpeterian unemployment, trade and wages," Journal of International Economics, Elsevier, vol. 54(1), pages 119-148, June.
  6. Redding, Stephen, 2002. "Specialization dynamics," Journal of International Economics, Elsevier, vol. 58(2), pages 299-334, December.
  7. Muysken,Joan & Weel,Bas,ter, 1999. "Overeducation, Job Competition and Unemployment," Research Memorandum 030, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
  8. Meckl, Jürgen, 2005. "Are US Wages Really Determined by European Labor-Market Institutions?," IZA Discussion Papers 1817, Institute for the Study of Labor (IZA).
  9. Rossana Patrón, 2009. "Trade liberalization in a Heckscher–Ohlin model: Does public skill formation change the conventional results?," Documentos de Trabajo (working papers) 1809, Department of Economics - dECON.
  10. Das, Satya P., 2006. "Trade, skill acquisition and distribution," Journal of Development Economics, Elsevier, vol. 81(1), pages 118-141, October.
  11. Hollanders,Hugo & Weel,Bas,ter, 1999. "Skill-Biased Technical Change: On Endogenous Growth, Wage Inequality and Government Intervention," Research Memorandum 013, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).

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