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Wages and endowments in a globalised world

Author

Listed:
  • Lorenzo Rotunno

    (Nuffield College and Blavatnik School of Government, University of Oxford)

  • Adrian Wood

    (Dept of International Development, University of Oxford)

Abstract

This paper explores empirically the relationship between relative wages and relative endowments of skilled and unskilled workers in open economies across the world. It reconciles different views about the role of national labour markets in wage determination when countries trade. The observed sensitivity of relative wages to variation in endowments in open economies, across countries and over time, is hard to reconcile with the standard HOS model. By contrast, this sensitivity is intrinsic to a more general (so labeled GHO) model in which, as shown by our results, the wage-endowment elasticity depends on the height of barriers to trade and on the share of wages in goods prices. In GHO, openness to trade reduces - rather than eliminates - the sensitivity of wages to variation in endowments.

Suggested Citation

  • Lorenzo Rotunno & Adrian Wood, 2015. "Wages and endowments in a globalised world," Economics Papers 2015-W11, Economics Group, Nuffield College, University of Oxford.
    • Handle: RePEc:nuf:econwp:1511
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    File URL: https://www.nuffield.ox.ac.uk/economics/papers/2015/facprice_oct15.pdf
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    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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