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Globalization and wage premia: reconciling facts and theory

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  • Strauss-Kahn, Vanessa

Abstract

This paper analyzes the e¤ect of globalization on wage premia by studying the interaction between trade costs, firms’ location decision, and relative demand for labor. It suggests that globalization, through vertical specialization and/or agglomeration, increases inequality in countries with a relative abundance of skilled workers in a way that is observationally equivalent to skilled-biased technological progress (i.e., joint increases in the wage premium and the within-industry skilled–unskilled employment ratio). This confirms the potential role of international trade in explaining the observed increase in wage inequality between skilled and unskilled workers that has occurred in most industrialized countries since the mid- 1970s. Calibration of the model supports this result. It shows that NAFTA has contributed significantly to the observed increase in the U.S. wage premium.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20410.

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Date of creation: Aug 2003
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Handle: RePEc:pra:mprapa:20410

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Keywords: Agglomeration; Intermediate Inputs; Skilled/Unskilled Wages; Trade Liber- alization; Vertical Specialization.;

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  1. Machin, Steve & Van Reenen, John, 1996. "Technology and Changes in Skill Structure: Evidence from an International Panel of Industries," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1434, C.E.P.R. Discussion Papers.
  2. Davis, Donald R. & Weinstein, David E., 1999. "Economic geography and regional production structure: An empirical investigation," European Economic Review, Elsevier, Elsevier, vol. 43(2), pages 379-407, February.
  3. Robert Feenstra, 2003. "Integration Of Trade And Disintegration Of Production In The Global Economy," Working Papers, University of California, Davis, Department of Economics 986, University of California, Davis, Department of Economics.
  4. David Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports, Federal Reserve Bank of New York 72, Federal Reserve Bank of New York.
  5. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412 National Bureau of Economic Research, Inc.
  6. James Harrigan, 1998. "International Trade and American Wages in General Equilibrium, 1967 - 1995," NBER Working Papers 6609, National Bureau of Economic Research, Inc.
  7. Donald R. Davis & David E. Weinstein, 2002. "Do factor endowments matter for north-north trade?," Discussion Papers, Columbia University, Department of Economics 0102-03, Columbia University, Department of Economics.
  8. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
  9. Lawrence F. Katz & Gary W. Loveman & David G. Blanchflower, 1993. "A Comparison of Changes in the Structure of Wages," NBER Working Papers 4297, National Bureau of Economic Research, Inc.
  10. Venables, Anthony J, 1996. "Equilibrium Locations of Vertically Linked Industries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 341-59, May.
  11. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment: Updates and Implications," CID Working Papers, Center for International Development at Harvard University 42, Center for International Development at Harvard University.
  12. Harrigan, James, 1993. "OECD imports and trade barriers in 1983," Journal of International Economics, Elsevier, Elsevier, vol. 35(1-2), pages 91-111, August.
  13. Bound, John & Johnson, George, 1992. "Changes in the Structure of Wages in the 1980's: An Evaluation of Alternative Explanations," American Economic Review, American Economic Association, American Economic Association, vol. 82(3), pages 371-92, June.
  14. Jose Campa & Linda S. Goldberg, 1997. "The Evolving External Orientation of Manufacturing Industries: Evidence from Four Countries," NBER Working Papers 5919, National Bureau of Economic Research, Inc.
  15. 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.
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