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Preference shifts and wage inequality

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  • Jiancai Pi
  • Xiangyu Huang

Abstract

This paper analyzes how preference shifts affect wage inequality. We take the Cobb–Douglas preference, the Dixit-Stiglitz preference and the quasi-linear preference into account, and find that there exists preference-driven wage inequality. In the two-type labor (i.e. skilled labor and unskilled labor) models, when the preferences of consumers for skilled products are strengthened, wage inequality will be widened (resp. narrowed down) if there is a relatively low (resp. high) capital intensity in the unskilled sector. We also build a three-type labor (i.e. high-skilled labor, medium-skilled labor, and unskilled labor) model and a model with a non-tradable unskilled sector to strengthen the explanatory power. The role of preferences shifts in changing wage inequality is overlooked by the existing literature.

Suggested Citation

  • Jiancai Pi & Xiangyu Huang, 2022. "Preference shifts and wage inequality," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 31(5), pages 759-782, July.
    • Handle: RePEc:taf:jitecd:v:31:y:2022:i:5:p:759-782
    DOI: 10.1080/09638199.2021.2022177
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    Cited by:

    1. Jiancai Pi & Shuning Li, 2022. "Managerial Delegation and Wage Inequality," Annals of Economics and Finance, Society for AEF, vol. 23(1), pages 141-157, May.

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