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Fair Wages and Human Capital Accumulation in a Global Economy

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  • Udo Kreickemeier

Abstract

This paper analyzes trade in an asymmetric 2×2×2 world, where the two countries, labelled America and Europe, differ in their attitudes towards wage inequality. In both America and Europe, fair wage considerations compress differentials between the wages for skilled and unskilled workers, leading to involuntary unemployment of unskilled workers in equilibrium. European workers are more averse to wage inequality than American workers though, and as a consequence Europe is characterised by lower wage differentials as well as higher unemployment. Allowing for endogenous skill formation in both countries, the effects of a globalization shock – modelled as the entry of newly industrializing countries into the trading world – on prices and employment levels are derived.

Suggested Citation

  • Udo Kreickemeier, 2004. "Fair Wages and Human Capital Accumulation in a Global Economy," CESifo Working Paper Series 1185, CESifo.
    • Handle: RePEc:ces:ceswps:_1185
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    File URL: https://www.ifo.de/DocDL/cesifo1_wp1185.pdf
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    References listed on IDEAS

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    1. George A. Akerlof & Janet L. Yellen, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(2), pages 255-283.
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    3. Donald R. Davis & Trevor A. Reeve, 2002. "Human Capital, Unemployment and Relative Wages in a Global Economy," International Economic Association Series, in: David Greenaway & Richard Upward & Katharine Wakelin (ed.), Trade, Investment, Migration and Labour Market Adjustment, chapter 2, pages 7-27, Palgrave Macmillan.
    4. Ernst Fehr & Armin Falk, 1999. "Wage Rigidity in a Competitive Incomplete Contract Market," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 106-134, February.
    5. Davis, Donald R, 1998. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade," American Economic Review, American Economic Association, vol. 88(3), pages 478-494, June.
    6. Krugman, Paul R., 2000. "Technology, trade and factor prices," Journal of International Economics, Elsevier, vol. 50(1), pages 51-71, February.
    7. Daron Acemoglu, 2003. "Cross-Country Inequality Trends," Economic Journal, Royal Economic Society, vol. 113(485), pages 121-149, February.
    8. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 97(4), pages 543-569.
    9. David G. Blanchflower & Andrew J. Oswald, 1995. "An Introduction to the Wage Curve," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 153-167, Summer.
    10. repec:bla:scandj:v:97:y:1995:i:2:p:295-307 is not listed on IDEAS
    11. Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 327-377.
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    Cited by:

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