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Sector-Specific Factors and the Trade and Wages Debate



I outline the potential implications of sectoral factor immobility for the debate on the effects of low-wage competition on wage inequality in advanced countries. In theory, the presence of sector-specific factors serves to damp the magnification effect of World traded prices upon relative wages, by reducing the shift of output from unskilled-intensive to skilled-intensive sectors, and Edwards and Whalley (2007) have shown that only modest amounts of fixed factors are required to alter results qualitatively. There is evidence among OECD countries of a negative relationship between the structural decline of manufacturing since 1970 and increasing wage inequality: it is argued that the less flexible labour market institutions in Continental Europe may have mitigated the downward pressure on unskilled wages by this route, particularly if factor depreciation is of an ongoing maintenance cost variety.

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  • T.Huw Edwards, 2008. "Sector-Specific Factors and the Trade and Wages Debate," Discussion Paper Series 2008_10, Department of Economics, Loughborough University, revised Oct 2008.
  • Handle: RePEc:lbo:lbowps:2008_10

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    References listed on IDEAS

    1. Jan Boone, 2008. "A New Way to Measure Competition," Economic Journal, Royal Economic Society, vol. 118(531), pages 1245-1261, August.
    2. Braeutigam, Ronald R. & Daughety, Andrew F., 1983. "On the estimation of returns to scale using variable cost functions," Economics Letters, Elsevier, vol. 11(1-2), pages 25-31.
    3. Vickers, John, 1995. "Concepts of Competition," Oxford Economic Papers, Oxford University Press, vol. 47(1), pages 1-23, January.
    4. Kumbhakar,Subal C. & Lovell,C. A. Knox, 2003. "Stochastic Frontier Analysis," Cambridge Books, Cambridge University Press, number 9780521666633, March.
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    More about this item


    trade; inequality; globalisation; factor immobility.;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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