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Trade liberalization, labour mobility and wages

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  • Daniel Traca

Abstract

This paper analyses the labour market effects of trade liberalization, in a model where (a) labour demand uncertainty is higher in tradable industries, due to industry-specific shocks to world prices, and (b) the costs of inter-sectoral mobility are lower for skilled (i.e. educated) workers. We look at two cases: first, where labour markets are competitive and, second, where an unemployment subsidy creates rigidities. The results show an increase in the wage skill gap, a decline in the real wage and welfare of unskilled workers, and an expansion of inter-sectoral labour mobility and wage volatility. These effects are more pronounced in the case of competitive markets. Our results suggest that focusing on the traditional Stolper - Samuelson effect may underestimate the effects of international trade on labour markets.

Suggested Citation

  • Daniel Traca, 2004. "Trade liberalization, labour mobility and wages," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 13(2), pages 111-136.
    • Handle: RePEc:taf:jitecd:v:13:y:2004:i:2:p:111-136
    DOI: 10.1080/0963819042000218728
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    1. Matthew J. Slaughter, 2000. "What Are the Results of Product-Price Studies and What Can We Learn from Their Differences?," NBER Chapters, in: The Impact of International Trade on Wages, pages 129-169, National Bureau of Economic Research, Inc.
    2. Paolo Mauro & Antonio Spilimbergo, 1999. "How Do the Skilled and the Unskilled Respond to Regional Shocks?: The Case of Spain," IMF Staff Papers, Palgrave Macmillan, vol. 46(1), pages 1-1.
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