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Accounting for Skill Premium Patterns during the EU Accession: Productivity or Trade?

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  • Sang-Wook (Stanley) Cho

    ()
    (School of Economics, Australian School of Business, the University of New South Wales)

  • Juliàn P. Dìaz

    ()
    (Department of Economics, Quinlan School of Business, Loyola University)

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    Abstract

    In this article, we disentangle the relationship between the skill premium, trade liberalization and productivity changes in accounting for the skill premium patterns of transition economies that joined the European Union (EU) in 2004. To conduct our analysis, we construct an applied general equilibrium model with skilled and unskilled labor, and combining Social Accounting Matrices, Household Budget Surveys and the EU KLEMS Growth and Productivity Accounts database, we calibrate it to match Hungarian data, a transition economy wherethe skill premium consistently increased between 1995 and 2005. We then assess the role of the multiple factors that affected the patterns of the skill premium: trade liberalization reforms, factor and sector bias of technical change and capital deepening, and find that all the factors can jointly account for approximately 87% of the actual change in skill premium between 1995 and 2005. Individually, capital deepening accounts for the largest share of the rise in the skill premium, whereas trade liberalization accounts for a small portion of that increase. While productivity changes account for only a small fraction of the skill premium increases during 1995 and 2000, they significantly offset the impact of the capital deepening on the skill premium in the period between 2000 and 2005.

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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2014-14.pdf
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    Bibliographic Info

    Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2014-14.

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    Length: 33 pages
    Date of creation: Mar 2014
    Date of revision:
    Handle: RePEc:swe:wpaper:2014-14

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    Web page: http://www.economics.unsw.edu.au/
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    Keywords: Transition Economies; Skill Premium; Trade Liberalization; Skill-biased Technical Change; Capital-skill complementarity;

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    References

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