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Variety-Skill Complementarity: A Simple Resolution of the Trade-Wage Inequality Anomaly

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  • Yoshinori Kurokawa

Abstract

The Stolper-Samuelson theorem predicts that the relative wage of high-skilled to low-skilled labor will increase in the high-skill abundant U.S. but decrease in low-skill abundant Mexico after trade liberalization, while it actually began to rise in both countries in the late 1980s. We present a simple resolution of this "trade-wage inequality anomaly" in a model of variety trade. Variety trade increases the variety of intermediate goods used by the final good. If the varieties and high-skilled labor are complements, the skill premium rises in both countries. This linking of imports of new foreign varieties?---the extensive margin?---to wage inequality is compatible with evidence. Our numerical examples illustrate that small amounts of variety trade can produce a signi?ficant increase in relative wage.

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Paper provided by Economics, Graduate School of Humanities and Social Sciences, University of Tsukuba in its series Tsukuba Economics Working Papers with number 2009-007.

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Date of creation: Mar 2009
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Handle: RePEc:tsu:tewpjp:2009-007

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Citations

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Cited by:
  1. Kurokawa, Yoshinori, 2011. "Is a skill intensity reversal a mere theoretical curiosum? Evidence from the US and Mexico," Economics Letters, Elsevier, vol. 112(2), pages 151-154, August.
  2. Nathalie Chusseau & Michel Dumont, 2012. "Growing income inequalities in advanced countries," Working Papers 260, ECINEQ, Society for the Study of Economic Inequality.
  3. Manoj Atolia & Yoshinori Kurokawa, 2008. "Variety Trade and Skill Premium in a Calibrated General Equilibrium Model: The Case of Mexico," Working Papers wp2008_11_03, Department of Economics, Florida State University.
  4. Yoshinori Kurokawa & Jiaren Pang & Yao Tang, 2013. "Exchange Rate Regimes and Nominal Wage Comovements in a Dynamic Ricardian Model," Tsukuba Economics Working Papers 2013-005, Economics, Graduate School of Humanities and Social Sciences, University of Tsukuba.
  5. Nathalie Chusseau & Michel Dumont, 2012. "Growing Income Inequalities in Advanced," Working Papers hal-00993359, HAL.
  6. Andrea Vaona, 2013. "Countervailing inequality effects of globalization and renewable energy generation in Argentina," Working Papers 12/2013, University of Verona, Department of Economics.
  7. Chingunjav Amarsanaa & Yoshinori Kurokawa, 2011. "The Extensive Margin of International Trade in a Transition Economy: The Case of Mongolia," Tsukuba Economics Working Papers 2011-005, Economics, Graduate School of Humanities and Social Sciences, University of Tsukuba.
  8. Toshiaki Takahashi & Hajime Takatsuka & Dao-Zhi Zeng, 2013. "Spatial inequality, globalization, and footloose capital," Economic Theory, Springer, vol. 53(1), pages 213-238, May.

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