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Trade and Variety-Skill Complementarity: A Simple Trade-Based Resolution of Wage Inequality Anomaly

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  • Kurokawa, Yoshinori

Abstract

The Stolper-Samuelson theorem predicts the relative wage of high-skilled labor will increase in the U.S. but decrease in Mexico after trade, while data shows the skill premium began to rise in both countries during the 1980s. This paper presents a simple trade-based resolution of this “wage inequality anomaly.” The resolution is a straightforward application of well-known variety trade models. Intra-industry trade increases the variety of intermediate goods used by the high-skill intensive final good. If the varieties and high skill are “complements,” the skill premium rises in both countries. Evidence supports this linking of intra-industry trade to wage inequality.

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  • Kurokawa, Yoshinori, 2006. "Trade and Variety-Skill Complementarity: A Simple Trade-Based Resolution of Wage Inequality Anomaly," MPRA Paper 14011, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:14011
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    Cited by:

    1. Andrea Waddle, 2021. "Trade, Technological Change, And Wage Inequality: The Case Of Mexico," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(1), pages 243-276, February.
    2. Arindam Banik & Pradip K. Bhaumik, 2018. "The Effects of Exogenous Technological Change on Wage Inequality in Rural India," Global Business Review, International Management Institute, vol. 19(6), pages 1515-1537, December.
    3. Kurokawa, Yoshinori, 2011. "Is a skill intensity reversal a mere theoretical curiosum? Evidence from the US and Mexico," Economics Letters, Elsevier, vol. 112(2), pages 151-154, August.
    4. Michele Raitano & Francesco Vona, 2017. "Competition, firm size and returns to skills: Evidence from currency shocks and market liberalisations," The World Economy, Wiley Blackwell, vol. 40(12), pages 2676-2703, December.
    5. Yoshinori Kurokawa, 2014. "A Simple Model of Competition Policies, Trade, and the Skill Premium," Tsukuba Economics Working Papers 2014-002, Faculty of Humanities and Social Sciences, University of Tsukuba, revised Apr 2020.
    6. Huanxing Yang, 2020. "Targeted search, endogenous market segmentation, and wage inequality," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 69(2), pages 367-414, March.
    7. Manoj Atolia & Yoshinori Kurokawa, 2008. "Variety Trade and Skill Premium in a Calibrated General Equilibrium Model: The Case of Mexico," Working Papers wp2008_11_03, Department of Economics, Florida State University.
    8. Nathalie Chusseau & Michel Dumont, 2013. "Growing Income Inequalities in Advanced Countries," Palgrave Macmillan Books, in: Joël Hellier & Nathalie Chusseau (ed.), Growing Income Inequalities, chapter 1, pages 13-47, Palgrave Macmillan.
    9. Chingunjav Amarsanaa & Yoshinori Kurokawa, 2021. "The Extensive Margin of International Trade in a Transition Economy: The Case of Mongolia," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(4), pages 648-673, December.
    10. Saito Tetsuya, 2012. "How Do We Get Cobb-Douglas and Leontief Functions from CES Function: A Lecture Note on Discrete and Continuum Differentiated Object Models," Journal of Industrial Organization Education, De Gruyter, vol. 6(1), pages 1-13, December.
    11. Kurokawa, Yoshinori & Pang, Jiaren & Tang, Yao, 2016. "Exchange rate regimes and wage comovements in a Ricardian model with money," Journal of International Economics, Elsevier, vol. 102(C), pages 96-109.
    12. Atolia, Manoj & Kurokawa, Yoshinori, 2016. "The impact of trade margins on the skill premium: Evidence from Mexico," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 895-915.
    13. Yoshinori Kurokawa, 2014. "A Survey Of Trade And Wage Inequality: Anomalies, Resolutions And New Trends," Journal of Economic Surveys, Wiley Blackwell, vol. 28(1), pages 169-193, February.
    14. Toshiaki Takahashi & Hajime Takatsuka & Dao-Zhi Zeng, 2013. "Spatial inequality, globalization, and footloose capital," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 53(1), pages 213-238, May.
    15. Andrea Vaona, 2013. "Countervailing inequality effects of globalization and renewable energy generation in Argentina," Working Papers 12/2013, University of Verona, Department of Economics.
    16. Nathalie Chusseau & Michel Dumont, 2012. "Growing Income Inequalities in Advanced," Working Papers hal-00993359, HAL.
    17. Collin Rabe & Andrea Waddle, 2018. "Leaving NAFTA:Implications for Inequality," 2018 Meeting Papers 831, Society for Economic Dynamics.

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    Keywords

    Trade; Wage inequality; Variety-skill complementarity;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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