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Short and Long Run Decomposition of OECD Wage Inequality Changes

Author

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  • Edwards, T Huw

    (University of Warwick)

  • John Whalley

Abstract

This paper focuses on the decomposition of increased wage inequality in OECD countries into the component factors of trade surges in low wage products and technological change. It argues that if the observed wage inequality response to price and technology shocks represents a short run response in which factors and output have not adjusted fully across industries, then decomposition analysis is substantially altered relative to a long-run factors mobile world. This applies either when one type of labour has mobility costs or where there is an additional, sectorally immobile factor. Only small departures from the fully mobile model can greatly change decompositions. Previous general equilibrium based studies have assumed a long-run full mobility response, when this may not be the case, and may consequently have drawn incorrect conclusions.

Suggested Citation

  • Edwards, T Huw & John Whalley, 2003. "Short and Long Run Decomposition of OECD Wage Inequality Changes," Royal Economic Society Annual Conference 2003 72, Royal Economic Society.
    • Handle: RePEc:ecj:ac2003:72
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    Cited by:

    1. is not listed on IDEAS
    2. T. Huw Edwards, 2006. "Search and the Path-Dependency of Trade," Discussion Paper Series 2006_12, Department of Economics, Loughborough University, revised May 2006.
    3. Gokhan Akay, 2009. "New Look on the Specific Factor Model: Empirical Evidence from Manufacturing Industries in Tanzania," International Economic Journal, Taylor & Francis Journals, vol. 23(2), pages 211-226.
    4. Sahoo, A., 2008. "Essays on the Indian economy : Competitive pressure, productivity and performance," Other publications TiSEM 374e9035-815c-43fe-a68e-e, Tilburg University, School of Economics and Management.
    5. Iain Fraser & Robert Waschik, 2010. "The Double Dividend Hypothesis in a CGE Model: Specific Factors and Variable Labour Supply," Working Papers 2010.02, School of Economics, La Trobe University.

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    Keywords

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    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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