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Human capital, unemployment, and relative wages in a global economy

  • Donald R. Davis
  • Trevor A. Reeve

This paper develops a simple framework for examining human capital accumulation, unemployment, and relative wages in a global economy. It builds on the models of Davis (1998a, b) of trade between a flexible-wage America and a rigid-wage Europe. To this it adds a model of human capital accumulation based on Findlay and Kierzkowski (1983). A variety of comparative statics are examined, including changes in educational capital and population, entry of new countries to the trading world, technical change, and a productivity slowdown. We derive the consequences for the skilled-to unskilled wage gap, unemployment, and skill composition.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 659.

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Date of creation: 2000
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Handle: RePEc:fip:fedgif:659
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  1. Berman, Eli & Bound, John & Machin, Stephen, 1997. "Implications of Skill-Biased Technological Change: International Evidence," Working Paper Series 486, Research Institute of Industrial Economics.
  2. 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 478-94, June.
  3. Bertola, Giuseppe & Ichino, Andrea, 1995. "Wage Inequality and Unemployment: US vs Europe," CEPR Discussion Papers 1186, C.E.P.R. Discussion Papers.
  4. Daron Acemoglu, 1999. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," American Economic Review, American Economic Association, vol. 89(5), pages 1259-1278, December.
  5. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1991. "Multiple free trade equilibria in micro models of unemployment," Journal of International Economics, Elsevier, vol. 31(1-2), pages 157-169, August.
  6. Fernandez, Raquel, 1992. "Terms-of-Trade Uncertainty, Incomplete Markets and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 881-94, November.
  7. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  8. Hoon, Hian Teck, 1991. "Comparative advantage and the equilibrium rate of unemployment," Economics Letters, Elsevier, vol. 37(3), pages 299-304, November.
  9. Berman, Eli & Bound, John & Griliches, Zvi, 1994. "Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 367-97, May.
  10. Paul Krugman & Robert Lawrence, 1993. "Trade, Jobs, and Wages," NBER Working Papers 4478, National Bureau of Economic Research, Inc.
  11. Donald R. Davis, 1996. "Technology, Unemployment, and Relative Wages in a Global Economy," NBER Working Papers 5636, National Bureau of Economic Research, Inc.
  12. Donald R. Davis, 1996. "Does European Unemployment Prop Up American Wages?," Harvard Institute of Economic Research Working Papers 1752, Harvard - Institute of Economic Research.
  13. Sanyal, Kalyan K & Jones, Ronald W, 1982. "The Theory of Trade in Middle Products," American Economic Review, American Economic Association, vol. 72(1), pages 16-31, March.
  14. Edward E. Leamer, 1996. "In Search of Stolper-Samuelson Effects on U.S. Wages," NBER Working Papers 5427, National Bureau of Economic Research, Inc.
  15. Melvin, James R, 1969. "Intermediate Goods, the Production Possibility Curve, and Gains from Trade," The Quarterly Journal of Economics, MIT Press, vol. 83(1), pages 141-51, February.
  16. Flug, Karnit & Galor, Oded, 1986. "Minimum Wage in a General Equilibrium Model of International Trade and Human Capital," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 149-64, February.
  17. Richard B. Freeman & Lawrence F. Katz, 1995. "Differences and Changes in Wage Structures," NBER Books, National Bureau of Economic Research, Inc, number free95-1, August.
  18. Brecher, Richard A, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 98-116, February.
  19. Brecher, Richard A & Long, Ngo Van, 1989. "Trade Unions in an Open Economy: A General Equilibrium Analysis," The Economic Record, The Economic Society of Australia, vol. 65(190), pages 234-39, September.
  20. 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.
  21. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-42, March.
  22. Findlay, Ronald & Kierzkowski, Henryk, 1983. "International Trade and Human Capital: A Simple General Equilibrium Model," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 957-78, December.
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