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Skill differentiation and wage disparity in a decentralized matching model of North-South trade

Author

Listed:
  • Hesham M. Abdel-Rahman
  • George Norman
  • Ping Wang

Abstract

In this paper we develop a North-South trade model in which the South produces food and the North produces both food and a high-tech good. Food production is undertaken by unskilled workers, while the high-tech product is made only by horizontally differentiated skilled workers. Owing to the possibility of a peer-group effect, we allow the unskilled workers in the North to be equally or more productive than in the South. Horizontal matching of skilled workers is generally imperfect and the skilled wages are determined by a symmetric Nash bargain. We characterize two different types of equilibrium: a closed-economy equilibrium without trade and a free trade equilibrium without labour mobility. We then extend the benchmark framework to consider the presence of transport costs. In all cases with trade, the equilibrium properties of goods pricing, the volume of trade as well as between-group and within-group wage inequality are examined.

Suggested Citation

  • Hesham M. Abdel-Rahman & George Norman & Ping Wang, 2002. "Skill differentiation and wage disparity in a decentralized matching model of North-South trade," Canadian Journal of Economics, Canadian Economics Association, vol. 35(4), pages 854-878, November.
  • Handle: RePEc:cje:issued:v:35:y:2002:i:4:p:854-878
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    Cited by:

    1. Frédéric Gannon & Gilles Le Garrec & Vincent Touze, 2016. "Aging, international capital flows and long run convergence," Sciences Po publications 2016-09, Sciences Po.

    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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