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Technology, unemployment, and relative wages in a global economy

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  • Davis, Donald R.

Abstract

Arguably the most important development in recent decades in US factor markets is the decline in the relative wage of the unskilled. By contrast, in Europe it is undoubtedly the rise and persistence of unemployment. Technology has been identified as a key reason for the rising US wage inequality, while labor market rigidities are often cited as a key reason for European unemployment. This paper seeks to provide a unified account of these major factor market developments. It models the impact of technical change on relative wages and unemployment in a world in which one country has flexible and the other rigid labor market institutions. The results depart significantly but sensibly from what one would expect in a fully flexible wage world. A few stylized facts help to narrow the field to a few candidates to account for these factor market developments.
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Suggested Citation

  • Davis, Donald R., 1998. "Technology, unemployment, and relative wages in a global economy," European Economic Review, Elsevier, vol. 42(9), pages 1613-1633, November.
    • Handle: RePEc:eee:eecrev:v:42:y:1998:i:9:p:1613-1633
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    References listed on IDEAS

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    1. Donald R. Davis, 1996. "Does European Unemployment Prop up American Wages?," NBER Working Papers 5620, National Bureau of Economic Research, Inc.
    2. Eli Bekman & John Bound & Stephen Machin, 1998. "Implications of Skill-Biased Technological Change: International Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(4), pages 1245-1279.
    3. Davis, Donald, 1996. "Does European Unemployment Prop Up American Wages?," Harvard Institute for International Development (HIID) Papers 294370, Harvard University, Kennedy School of Government.
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    7. Eli Berman & John Bound & Zvi Griliches, 1994. "Changes in the Demand for Skilled Labor within U. S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 367-397.
    8. Lawrence F. Katz & Gary W. Loveman & David G. Blanchflower, 1993. "A Comparison of Changes in the Structure of Wages," NBER Working Papers 4297, National Bureau of Economic Research, Inc.
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    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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