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 variety-trade model. Intra-industry 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. Our simulations show that small amounts of intra-industry trade can produce a significant 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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