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Globalization and Wage Polarization

Author

Listed:
  • Guido Cozzi

    (University of St. Gallen)

  • Giammario Impullitti

    (University of Nottingham)

Abstract

In the 1980s and 1990s, the U.S. labor market experienced a remarkable polarization along with fast technological catch-up as Europe and Japan improved their global innovation performance. Is foreign technological convergence an important source of wage polarization? To answer this question, we build a multicountry Schumpeterian growth model with heterogeneous workers, endogenous skill formation, and occupational choice. We show that convergence produces polarization through business stealing and increasing competition in global innovation races. Quantitative analysis shows that these channels can be important sources of U.S. polarization. Moreover, the model delivers predictions on the U.S. wealth-income ratio consistent with empirical evidence.

Suggested Citation

  • Guido Cozzi & Giammario Impullitti, 2016. "Globalization and Wage Polarization," The Review of Economics and Statistics, MIT Press, vol. 98(5), pages 984-1000, December.
  • Handle: RePEc:tpr:restat:v:98:y:2016:i:5:p:984-1000
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