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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. Andrea Vaona, 2013. "Countervailing inequality effects of globalization and renewable energy generation in Argentina," Working Papers 12/2013, University of Verona, Department of Economics.
  4. Nathalie Chusseau & Michel Dumont, 2012. "Growing Income Inequalities in Advanced," Working Papers hal-00993359, HAL.
  5. Toshiaki Takahashi & Hajime Takatsuka & Dao-Zhi Zeng, 2013. "Spatial inequality, globalization, and footloose capital," Economic Theory, Springer, vol. 53(1), pages 213-238, May.
  6. 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.
  7. 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.
  8. Atolia, Manoj & Yoshinori, Kurokawa, 2008. "Variety Trade and Skill Premium in a Calibrated General Equilibrium Model: The Case of Mexico," MPRA Paper 13698, University Library of Munich, Germany.
  9. Yoshinori Kurokawa, 2014. "A Simple Model of Competition Policies, Trade, and the Skill Premium," Tsukuba Economics Working Papers 2014-002, Economics, Graduate School of Humanities and Social Sciences, University of Tsukuba.

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