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Labour Mobility, Capital-Skill Complementarity and the Redistributive Effects of Trade Integration

  • Carlo Devillanova

    (Bocconi University, Milano, Italy.)

  • Michele Di Maio

    (University of Macerata, Italy.)

  • Pietro Vertova

    (University of Bergamo, Italy.)

This paper addresses the role of mobility costs in shaping the effects of trade integration on wage inequality and welfare. We present a three-factor, two-sector model in which the production technology exhibits capital-skill complementarity and the cost of moving across sectors differs between unskilled and skilled workers. We consider a proportional tax on skilled workers’ wage that is used to finance a re-training program to reduce the mobility costs of unskilled workers. We show that if the training program is sufficiently effective, a positive tax rate can both reduce wage inequalities and reinforce the welfare-enhancing effects of trade integration. In addition we show that, even when the public programme entails some welfare losses, it can make trade integration Pareto superior with respect to autarky.

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Paper provided by KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy in its series KITeS Working Papers with number 188.

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Length: pages 25
Date of creation: Nov 2006
Date of revision: Nov 2006
Handle: RePEc:cri:cespri:wp188
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  1. Lindquist, Matthew J., 2002. "Capital-Skill Complementarity and Inequality Over the Business Cycle," Research Papers in Economics 2002:14, Stockholm University, Department of Economics, revised 01 Sep 2003.
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  9. Aghion, Philippe & Howitt, Peter & Violante†, Giovanni L., 2002. "General Purpose Technology and Wage Inequality," Scholarly Articles 12490369, Harvard University Department of Economics.
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  11. Griliches, Zvi, 1969. "Capital-Skill Complementarity," The Review of Economics and Statistics, MIT Press, vol. 51(4), pages 465-68, November.
  12. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
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  16. Aghion, Philippe & Howitt, Peter & Violante, Giovanni L, 2002. " General Purpose Technology and Wage Inequality," Journal of Economic Growth, Springer, vol. 7(4), pages 315-45, December.
  17. Ann P. Bartel & Nachum Sicherman, 1999. "Technological Change and Wages: An Interindustry Analysis," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 285-325, April.
  18. Jorge Saba Arbache & Andy Dickerson & Francis Green, 2004. "Trade Liberalisation and Wages in Developing Countries," Economic Journal, Royal Economic Society, vol. 114(493), pages F73-F96, 02.
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  21. J. M. Tomkins & J. Twomey, 2000. "Occupational mobility in England," Applied Economics, Taylor & Francis Journals, vol. 32(2), pages 193-209.
  22. Carlo Devillanova, 2004. "Interregional migration and labor market imbalances," Journal of Population Economics, Springer, vol. 17(2), pages 229-247, 06.
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