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Relative wages and trade-induced changes in technology

  • Ekholm, Karolina
  • Midelfart, Karen Helene

We develop a model where trade liberalization leads to skill-biased technological change, which in turn raises the relative return to skilled labour. As firms get access to a larger market, they have incentives to choose a more skill-intensive technology because a lowering of variable costs requires additional use of skilled labour. This way, we establish a link between trade, technology and relative returns to skilled and unskilled labour. Moreover, we show that as market integration continues and trade costs fall below a certain threshold, the relative return to skilled labour may fall.

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 49 (2005)
Issue (Month): 6 (August)
Pages: 1637-1663

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Handle: RePEc:eee:eecrev:v:49:y:2005:i:6:p:1637-1663
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  1. Neary, J Peter, 2002. "Foreign Competition and Wage Inequality," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 680-93, November.
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