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The skilled U-shaped Europe: is it really and on which side does it stand?

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Abstract

This paper derives from a New Economic Geography model, and estimates, a quadratic sectoral real wage equation for the member countries of the enlarged EU. When significant, the real wages U-shaped curve is increasing and concave with respect to market access, but decreasing and convex with respect to access to skilled labour. Real wages in Chemicals, Wood Products, Leather Products and Textiles do not react to market access, and only those sectors with low degree of scale economies and low-skill intensity are U-shaped with respect to access to skilled labour. At the present GDP levels, EU geography is still in the divergence-inducing side of the U-curve. In addition, EU real wages are significantly determined by country-specific characteristics other than geography that push Northern real wages upward and pull Eastern real wages downward.

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File URL: http://www.lboro.ac.uk/departments/ec/Reasearchpapers/2004/WPLboro4.pdf
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Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2004_06.

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Date of creation: Mar 2004
Date of revision: Mar 2004
Handle: RePEc:lbo:lbowps:2004_06
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Web page: http://www.lboro.ac.uk/departments/sbe/research/economics/index.html

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Keywords: wage equation; labour demand; human capital; EU enlargement; market potential;

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Find related papers by JEL classification:
  • F15 - International Economics - - Trade - - - Economic Integration
  • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
  • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
  • L6 - Industrial Organization - - Industry Studies: Manufacturing

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  8. Forslid, Rikard & Haaland, Jan I. & Midelfart Knarvik, Karen Helene, 2002. "A U-shaped Europe?: A simulation study of industrial location," Journal of International Economics, Elsevier, vol. 57(2), pages 273-297, August.
  9. H. Hanson, Gordon, 2005. "Market potential, increasing returns and geographic concentration," Journal of International Economics, Elsevier, vol. 67(1), pages 1-24, September.
  10. Hanson, Gordon H, 1997. "Increasing Returns, Trade and the Regional Structure of Wages," Economic Journal, Royal Economic Society, vol. 107(440), pages 113-133, January.
  11. Baldwin, R.E. & Forslid, R. & Haaland, J.I. & Knarvik, K.H.M., 2000. "EU Integration and Outsiders. A Simulation Study of industrial Location," Papers 2/2000, Norwegian School of Economics and Business Administration-.
  12. Helena Marques & Hugh Metcalf, 2003. "Wage Gradients in an Enlarged EU," Discussion Paper Series 2003_13, Department of Economics, Loughborough University, revised Dec 2003.
  13. Gary L. Hunt & Richard E. Mueller, 2002. "A Methodology for Estimating Returns to Skills for Canadian Provinces and U.S. States," Journal of Regional Science, Wiley Blackwell, vol. 42(1), pages 127-143.
  14. Forslid, Rikard, 1999. "Agglomeration with Human and Physical Capital: an Analytically Solvable Case," CEPR Discussion Papers 2102, C.E.P.R. Discussion Papers.
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