Explaining the wage gap: Heckscher-Ohlin, economic geography and services availability
In the debate on globalisation and wage inequality Heckscher-Ohlin, economic geography and services availability theory has featured prominently. However, a neglected mechanism by which globalisation affects labour market outcomes is through the in-creased tradability of producer services. By integrating elements of Heck-scher- Ohlin theory, the economic geography literature and the literature on producer services linkages, we show that the impact of globalisation on the relative wages is a sophisticated combination of the effects that play a key-role in these models. The most important result we find is that the fall in transportation costs of producer services might indeed have caused the sharp increase in wage inequality. (JEL F1, R1)
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