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The skilled U-shaped Europe: is it really and on which side does it stand?

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This paper derives from a New Economic Geography model, and estimates, a quadratic sectoral real wage equation for the member countries of the enlarged EU. When significant, the real wages U-shaped curve is increasing and concave with respect to market access, but decreasing and convex with respect to access to skilled labour. Real wages in Chemicals, Wood Products, Leather Products and Textiles do not react to market access, and only those sectors with low degree of scale economies and low-skill intensity are U-shaped with respect to access to skilled labour. At the present GDP levels, EU geography is still in the divergence-inducing side of the U-curve. In addition, EU real wages are significantly determined by country-specific characteristics other than geography that push Northern real wages upward and pull Eastern real wages downward.

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Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2004_06.

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Date of creation: Mar 2004
Date of revision: Mar 2004
Handle: RePEc:lbo:lbowps:2004_06

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Keywords: wage equation; labour demand; human capital; EU enlargement; market potential;

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  1. Hanson, G.H., 1999. "`Market Potential, Increasing Returns, and Geographic Concentration," Working Papers 439, Research Seminar in International Economics, University of Michigan.
  2. Forslid, Rikard, 1999. "Agglomeration with Human and Physical Capital: an Analytically Solvable Case," CEPR Discussion Papers 2102, C.E.P.R. Discussion Papers.
  3. Redding, Stephen J & Venables, Anthony J., 2000. "Economic Geography and International Inequality," CEPR Discussion Papers 2568, C.E.P.R. Discussion Papers.
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  8. Vassilis Monastiriotis, 2002. "Human capital and wages: evidence for external effects from the UK regions," Applied Economics Letters, Taylor & Francis Journals, vol. 9(13), pages 843-846.
  9. Helena Marques & Hugh Metcalf, 2003. "Wage Gradients in an Enlarged EU," Discussion Paper Series 2003_13, Department of Economics, Loughborough University, revised Dec 2003.
  10. Forslid, Rikard & Haaland, Jan I. & Midelfart Knarvik, Karen Helene, 2002. "A U-shaped Europe?: A simulation study of industrial location," Journal of International Economics, Elsevier, vol. 57(2), pages 273-297, August.
  11. Gary L. Hunt & Richard E. Mueller, 2002. "A Methodology for Estimating Returns to Skills for Canadian Provinces and U.S. States," Journal of Regional Science, Wiley Blackwell, vol. 42(1), pages 127-143.
  12. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  13. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  14. Hanson, Gordon H, 1997. "Increasing Returns, Trade and the Regional Structure of Wages," Economic Journal, Royal Economic Society, vol. 107(440), pages 113-33, January.
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