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Wage inequality and skill supplies in a globalised world

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  • Lorenzo Rotunno

    (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Adrian Wood

    (Department of International Development, University of Oxford)

Abstract

We investigate empirically, and explain theoretically, how the relative wages of skilled and unskilled workers vary with their relative supplies in open economies. Our results combine the insights of simple labour market and trade models. In countries that trade, relative wages respond inversely to variation in skill supplies, but the response decreases with the degree of openness to trade and is small in very open countries. To reconcile our results with standard estimates of the elasticity of substitution between skilled and unskilled workers, we allow also for the influence of directed technical change and income elasticity of demand for skill-intensive goods.

Suggested Citation

  • Lorenzo Rotunno & Adrian Wood, 2020. "Wage inequality and skill supplies in a globalised world," Post-Print hal-02505834, HAL.
  • Handle: RePEc:hal:journl:hal-02505834
    DOI: 10.1016/j.jce.2019.12.006
    Note: View the original document on HAL open archive server: https://hal-amu.archives-ouvertes.fr/hal-02505834
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    Cited by:

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    More about this item

    Keywords

    Wage inequality Labour markets Heckscher–Ohlin Trade and wages Directed technical change;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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