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Analyzing Skilled and Unskilled Labor Efficiencies in the US

This paper considers a world of two symmetric countries with two factors and two sectors. Outputs of the two sectors are imperfect substitutes and sectors differ in relative factor inten- sity. Each sector contains a continuum of heterogenous firms that produce differentiated goods within their sector. Trade is costly and there are both variable and fixed costs of exporting. The paper shows that under some plausible conditions supported by the data, trade between similar countries can increase the demand for skilled labor, which in turn increases the wage inequality between skilled and unskilled labor. The quantitative analyses suggest that such trade effects can explain up to 12 percent of the increase in the US skill premium.

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File URL: http://www.bus.lsu.edu/economics/papers/pap08_04.pdf
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Paper provided by Department of Economics, Louisiana State University in its series Departmental Working Papers with number 2008-04.

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Handle: RePEc:lsu:lsuwpp:2008-04
Contact details of provider: Postal: Baton Rouge, LA 70803-6306
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  1. David Autor & Lawrence Katz & Alan Krueger, 1997. "Computing Inequality: Have Computers Changed the Labor Market?," Working Papers 756, Princeton University, Department of Economics, Industrial Relations Section..
  2. Miguel Székely & Nancy Birdsall & Jere R. Behrman, 2000. "Economics Reform and Wage Differentials in Latin America," Research Department Publications 4235, Inter-American Development Bank, Research Department.
  3. Lawrence F. Katz & Kevin M. Murphy, 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," NBER Working Papers 3927, National Bureau of Economic Research, Inc.
  4. Charles I. Jones, . "Sources of U.S. Economic Growth in a World of Ideas," Working Papers 98009, Stanford University, Department of Economics.
  5. Paolo Epifani & Gino Gancia, 2002. "The Skill Bias of World Trade," KITeS Working Papers 129, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Mar 2001.
  6. Unel, Bulent, 2010. "Firm heterogeneity, trade, and wage inequality," Journal of Economic Dynamics and Control, Elsevier, vol. 34(8), pages 1369-1379, August.
  7. Bound, John & Johnson, George, 1992. "Changes in the Structure of Wages in the 1980's: An Evaluation of Alternative Explanations," American Economic Review, American Economic Association, vol. 82(3), pages 371-92, June.
  8. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1996. "Long-Run Implications of Investment-Specific Technological Change," RCER Working Papers 420, University of Rochester - Center for Economic Research (RCER).
  9. Francesco Caselli & Wilbur John Coleman II, 2002. "The U.S. Technology Frontier," American Economic Review, American Economic Association, vol. 92(2), pages 148-152, May.
  10. Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
  11. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
  12. Daron Acemoglu, 1998. "Why Do New Technologies Complement Skills? Directed Technical Change And Wage Inequality," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1055-1089, November.
  13. David Wasshausen & Brent R. Moulton, 2006. "The Role of Hedonic Methods in Measuring Real GDP in the United States," BEA Papers 0067, Bureau of Economic Analysis.
  14. Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 327-377.
  15. Francesco Caselli & Wilbur John Coleman II, 2006. "The World Technology Frontier," American Economic Review, American Economic Association, vol. 96(3), pages 499-522, June.
  16. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1, August.
  17. Jorgenson, Dale W., 2005. "Accounting for Growth in the Information Age," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 10, pages 743-815 Elsevier.
  18. Gordon, Robert J., 1990. "The Measurement of Durable Goods Prices," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226304557.
  19. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2008. "Trends in U.S. Wage Inequality: Revising the Revisionists," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 300-323, May.
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