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Short and Long Run Decomposition of OECD Wage Inequality Changes

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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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    References listed on IDEAS

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    1. Jonathan E. Haskel & Matthew J. Slaughter, 1998. "Does the Sector Bias of Skill-Biased Technical Change Explain Changing Wage Inequality?," NBER Working Papers 6565, National Bureau of Economic Research, Inc.
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    3. Leamer, Edward E. & Levinsohn, James, 1995. "International trade theory: The evidence," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 26, pages 1339-1394 Elsevier.
    4. Davis, Donald R., 1998. "Technology, unemployment, and relative wages in a global economy," European Economic Review, Elsevier, vol. 42(9), pages 1613-1633, November.
    5. Wolfgang F. Stolper & Paul A. Samuelson, 1941. "Protection and Real Wages," Review of Economic Studies, Oxford University Press, vol. 9(1), pages 58-73.
    6. Matthew J. Slaughter, 1999. "Globalisation and Wages: A Tale of Two Perspectives," The World Economy, Wiley Blackwell, vol. 22(5), pages 609-629, July.
    7. George J. Borjas & Richard B. Freeman & Lawrence F. Katz, 1992. "On the Labor Market Effects of Immigration and Trade," NBER Chapters,in: Immigration and the Workforce: Economic Consequences for the United States and Source Areas, pages 213-244 National Bureau of Economic Research, Inc.
    8. Mayer, Wolfgang, 1974. "Short-Run and Long-Run Equilibrium for a Small Open Economy," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 955-967, Sept./Oct.
    9. Abrego, Lisandro & Whalley, John, 2000. "The Choice of Structural Model in Trade-Wages Decompositions," Review of International Economics, Wiley Blackwell, pages 462-477.
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    11. Neary, J Peter, 1978. "Short-Run Capital Specificity and the Pure Theory of International Trade," Economic Journal, Royal Economic Society, vol. 88(351), pages 488-510, September.
    12. Damien NEVEN. & Charles WYPLOSZ, 1996. "Relative Prices, Trade and Restructuring in European Industry," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9615, Université de Lausanne, Faculté des HEC, DEEP.
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    Cited by:

    1. Helena Marques, 2005. "The skilled u-shaped Europe: is it really and on which side does it stand?," Applied Economics, Taylor & Francis Journals, vol. 37(19), pages 2205-2220.
    2. 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.
    3. 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.

    More about this item

    Keywords

    Trade; wages; technology; inequality.;

    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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