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Multi-dimensional skills and matching: implication for international trade and wage inequality

Author

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  • Chihiro Inaba

    (Department of Economics, Kobe University)

Abstract

Individuals have various skills and abilities. The amount of each skill or ability is heterogeneous among individuals, and these individuals work in jobs by exerting these skills and abilities. Firms also have demands for various skill and abilities dependent on the characteristics of its industry. Considering these multi-dimensional skill sets, it can be difficult to accurately match a worker's skill set with a firm's demand. Consequently, a mismatch of the skill set between workers and firms can occur, and may reduce worker wage income and firm productivity. This mismatch generates both inter- and intra- industry wage inequalities. This study considers how this skill mismatch affects the structure of production, wage inequalities, and international trade. I assume a two-dimensional skill set that is distributed among the workers by a normal probability distribution. I also assume a two-country economy with two industries per country. Cross-country differences in skill distribution can create differences in the structure of production and can be a source of international trade. When international trade commences, a portion of the workers employed in an importing industry will move to an exporting industry since they can earn a higher wage income than by remaining in the importing industry. However, the moving workers who are matched with less appropriate firms may suffer from a lower wage income than under autarky conditions.

Suggested Citation

  • Chihiro Inaba, 2015. "Multi-dimensional skills and matching: implication for international trade and wage inequality," Discussion Papers 1521, Graduate School of Economics, Kobe University.
    • Handle: RePEc:koe:wpaper:1521
    as

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    File URL: http://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2015/1521.pdf
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    References listed on IDEAS

    as
    1. Hartmut Egger & Udo Kreickemeier, 2017. "Fairness, Trade, and Inequality," World Scientific Book Chapters, in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 12, pages 339-380, World Scientific Publishing Co. Pte. Ltd..
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    4. Sherwin Rosen, 2005. "Substitution And Division Of Labour," World Scientific Book Chapters,in: An Inframarginal Approach To Trade Theory, chapter 3, pages 29-51 World Scientific Publishing Co. Pte. Ltd..
    5. Franziska Ohnsorge & Daniel Trefler, 2007. "Sorting It Out: International Trade with Heterogeneous Workers," Journal of Political Economy, University of Chicago Press, vol. 115(5), pages 868-892, October.
    Full references (including those not matched with items on IDEAS)

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    Keywords

    Multi-dimensional skills; International trade; Wage inequality;
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