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Trade impacts on skill formation: welfare improvements accompanied by rises in inequality

  • Yasuhiro Sato

    ()

    (Graduate School of Environmental Studies, Nagoya University (Japan))

  • Kazuhiro Yamamoto

    ()

    (Graduate School of Economics, Osaka University, (Japan))

In this paper, we focus on the skill formation when considering the trade impacts on labor markets. Although workers are identical as unskilled labor, they differ in their productivity as skilled. Workers become skilled by incurring the training costs. Introducing the above settings into a trade model with monopolistic competition, we show that trade opening enhances skill formation. This is because trade enriches the varieties of differentiated goods and raises the utility of a worker for a given income. This effect works stronger for the skilled than for the unskilled although it makes all agents better off, leading to higher skill formation. However, it may be accompanied by rises in the real wage disparity between skilled and unskilled workers and by rises in the skilled wage inequality. Finally, we examine the possible effects of foreign direct investment on the labor market structure as well.

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File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/0712.pdf
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Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 07-12.

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Length: 20 pages
Date of creation: Apr 2007
Date of revision:
Handle: RePEc:osk:wpaper:0712
Contact details of provider: Web page: http://www.econ.osaka-u.ac.jp/
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  17. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
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  19. Fields, Gary S, 1994. "Changing Labor Market Conditions and Economic Development in Hong Kong, the Republic of Korea, Singapore, and Taiwan, China," World Bank Economic Review, World Bank Group, vol. 8(3), pages 395-414, September.
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