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Trade, Wages and "Superstars"

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  • Paolo Manasse
  • Alessandro Turrini

Abstract

We study the effects ''globalization'' on wage inequality. Our ''global'' economy resembles Rosen (1981) ''Superstars'' economy, where a) innovations in production and communication technologies enable suppliers to reach a larger mass of consumers and to improve the (perceived) quality of their products and b) trade barriers fall.When transport costs fall, income is redistributed away from the non-exporting to the exporting sector of the economy. As the former turns out to employ workers of higher skill and pay, the effect is to raise wage inequality. Whether the least skilled are stand to lose or gain from improved production or communication technologies, in contrast, depends on wether technology is skill-complement or substitute. The model gives an intuitive explanation for the empirical regularities that skill intensity, market size and wages tend to be positively associated to exporting activity, across sectors and plants.

Suggested Citation

  • Paolo Manasse & Alessandro Turrini, "undated". "Trade, Wages and "Superstars"," Working Papers 140, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  • Handle: RePEc:igi:igierp:140
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • 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

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