Advanced Search
MyIDEAS: Login to save this paper or follow this series

Trade, Labor Market Rigidities, and Government-Financed Technological Change

Contents:

Author Info

  • Koeniger, Winfried

    ()
    (University of St. Gallen)

Abstract

This paper contributes to the debate on the effects of trade versus technological change on wage differentials. We propose an explanation of the stylized facts which is based on interactions between openness and technological change because of labor market institutions and government intervention. In particular, technology change is induced by rigid wage elements for a developed economy which is trading with less developed countries. With a binding minimum wage and given commodity prices, openness induces the government to subsidize technological innovation in the developed country because production activities in the sector hit by foreign competition would have to close down otherwise. The economy with a binding minimum wage and institutionally induced innovations differs from the flexible economy in the following way: -The wage differential becomes more compressed the higher the minimum wage. Not only the wage of the unskilled is higher, but also the wage of the skilled is lower. -The productivity of unskilled workers is higher in the sector intensive in its use. -Skill intensity within the unskilled-labor intensive sector can rise although the wage of the skilled rises as well. This perspective may explain why empirical studies have difficulties to find substantial effects of openness on wage differentials although product markets have become increasingly integrated. Moreover, it can explain why the volume of trade between developed and less-developed countries is relatively small. Finally our model yields predictions for developed countries with different labor market institutions that are consistent with empirical evidence.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://ftp.iza.org/dp241.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 241.

as in new window
Length: 58 pages
Date of creation: Jan 2001
Date of revision:
Handle: RePEc:iza:izadps:dp241

Contact details of provider:
Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org

Order Information:
Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Email:

Related research

Keywords: Trade; government; minimum wage; technology change;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Edward E. Leamer, 1996. "What's the Use of Factor Contents?," NBER Working Papers 5448, National Bureau of Economic Research, Inc.
  2. Dixit, Avinash & Norman, Victor, 1986. "Gains from trade without lump-sum compensation," Journal of International Economics, Elsevier, Elsevier, vol. 21(1-2), pages 111-122, August.
  3. George J. Borjas & Richard B. Friedman & Lawrence F. Katz, 1997. "How Much Do Immigration and Trade Affect Labor Market Outcomes?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 1-90.
  4. John M. Abowd & Richard B. Freeman, 1991. "Immigration, Trade and the Labor Market," NBER Books, National Bureau of Economic Research, Inc, number abow91-1.
  5. Flaig, Gebhard & Stadler, Manfred, 1994. "Success breeds success. The dynamics of the innovation process," Munich Reprints in Economics, University of Munich, Department of Economics 20366, University of Munich, Department of Economics.
  6. Benedict J. Clements & Hugo Rodríguez & Gerd Schwartz, 1998. "Economic Determinants of Government Subsidies," IMF Working Papers 98/166, International Monetary Fund.
  7. Doms, Mark & Dunne, Timothy & Troske, Kenneth R, 1997. "Workers, Wages, and Technology," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(1), pages 253-90, February.
  8. Mathias Thoenig, 2000. "Trade Induced Technical Bias and Wage Inequalities: A Theory of Defensive Innovation," Econometric Society World Congress 2000 Contributed Papers 1931, Econometric Society.
  9. Edward E. Leamer, 1999. "Effort, Wages, and the International Division of Labor," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(6), pages 1127-1162, December.
  10. 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.
  11. David Spector, 1999. "Is it Possible to Redistribute the Gains from Trade Using Income Taxation?," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 99-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Davis, Donald R., 1998. "Technology, unemployment, and relative wages in a global economy," European Economic Review, Elsevier, Elsevier, vol. 42(9), pages 1613-1633, November.
  13. Machin, S. & Van Reenen, J., 1997. "Technology and Changes in Skill Structure: Evidence from Seven OECD Countries," Papers, Centre for Economic Performance & Institute of Economics 24, Centre for Economic Performance & Institute of Economics.
  14. Damien NEVEN. & Charles WYPLOSZ, 1996. "Relative Prices, Trade and Restructuring in European Industry," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP), Université de Lausanne, Faculté des HEC, DEEP 9615, Université de Lausanne, Faculté des HEC, DEEP.
  15. Matthew J. Slaughter, 1998. "What Are the Results of Product-Price Studies and What Can We Learn From Their Differences?," NBER Working Papers 6591, National Bureau of Economic Research, Inc.
  16. George E. Johnson, 1997. "Changes in Earnings Inequality: The Role of Demand Shifts," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(2), pages 41-54, Spring.
  17. Jeffrey D. Sachs & Howard J. Shatz, 1994. "Trade and Jobs in Manufacturing," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 1-84.
  18. Daron Acemoglu & Fabrizio Zilbotti, 1999. "Productivity Differences," NBER Working Papers 6879, National Bureau of Economic Research, Inc.
  19. Ethier, Wilfred J., 1984. "Higher dimensional issues in trade theory," Handbook of International Economics, Elsevier, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 3, pages 131-184 Elsevier.
  20. Griffith, Rachel & Redding, Stephen J & Van Reenen, John, 2000. "Mapping The Two Faces Of R&D: Productivity Growth In A Panel Of OECD Industries," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2457, C.E.P.R. Discussion Papers.
  21. Caballero, R.J. & Hammour, M.L., 1997. "Jobless Growth: Appropriability, Factor-Substitution, and Unemployment," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 97-18, Massachusetts Institute of Technology (MIT), Department of Economics.
  22. Hine, Robert C & Wright, Peter W, 1998. "Trade with Low Wage Economies, Employment and Productivity in UK Manufacturing," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 108(450), pages 1500-1510, September.
  23. Stefano Scarpetta & Andrea Bassanini & Dirk Pilat & Paul Schreyer, 2000. "Economic Growth in the OECD Area: Recent Trends at the Aggregate and Sectoral Level," OECD Economics Department Working Papers 248, OECD Publishing.
  24. Dolado, Juan J. & Felgueroso, Florentino & Jimeno, Juan Francisco, 2000. "The Role Of The Minimum Wage In The Welfare State: An Appraisal," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2452, C.E.P.R. Discussion Papers.
  25. Olivier Blanchard, 1998. "Revisiting European Unemployment: Unemployment, Capital Accumulation, and Factor Prices," NBER Working Papers 6566, National Bureau of Economic Research, Inc.
  26. Daron Acemoglu, 2000. "Labor- and Capital- Augmenting Technical Change," NBER Working Papers 7544, National Bureau of Economic Research, Inc.
  27. Johnson, George & Stafford, Frank, 1999. "The labor market implications of international trade," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 34, pages 2215-2288 Elsevier.
  28. Brecher, Richard A, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 88(1), pages 98-116, February.
  29. Sapir, André, 2000. "Who is Afraid of Globalization? The Challenge of Domestic Adjustment in Europe and America," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2595, C.E.P.R. Discussion Papers.
  30. Trefler, Daniel, 1993. "Trade Liberalization and the Theory of Endogenous Protection: An Econometric Study of U.S. Import Policy," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(1), pages 138-60, February.
  31. Juan J. Dolado & Florentino Felgueroso & Juan F. Jimeno, . "The Role of the Minimum Wage in the Welfare State: An Appraisal," Working Papers 2000-12, FEDEA.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Kim, Jaewon, 2006. "The Determinants of Labor Market Institutions: A Panel Data Study," Research Papers in Economics, Stockholm University, Department of Economics 2006:10, Stockholm University, Department of Economics, revised 06 Dec 2006.
  2. Koeniger, Winfried, 2002. "Defensive Innovations," IZA Discussion Papers 454, Institute for the Study of Labor (IZA).

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp241. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.