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Skill bias, trade, and wage dispersion

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  • Monte, Ferdinando

Abstract

Wage ratios between different percentiles of the wage distribution have moved in parallel and then diverged in the U.S. in the last 50 years. In this paper, I study the theoretical response of wage ratios to skill-biased technical change and trade integration. I build a simple model of heterogeneous technology and heterogeneous workers that features complementarities between the quality of ideas and abilities. I show that changes to the skill bias of technology and to trade costs can both reproduce the observed pattern since (i) they have similar asymmetric effects on productive vs. unproductive firms, and (ii) positive assortative matching in the labor market transmits this asymmetry across high and low skill workers. Focusing on the different channels through which skill-biased technical change and trade integration operate suggests ways to disentangle the magnitude of each.

Suggested Citation

  • Monte, Ferdinando, 2011. "Skill bias, trade, and wage dispersion," Journal of International Economics, Elsevier, vol. 83(2), pages 202-218, March.
  • Handle: RePEc:eee:inecon:v:83:y:2011:i:2:p:202-218
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    Keywords

    Intra-industry trade Skill-biased technical change Local change in inequality Intra-firm rent distribution;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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