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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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    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    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. 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.
    13. Nathalie Chusseau & Michel Dumont, 2012. "Growing Income Inequalities in Advanced," Working Papers hal-00993359, HAL.
    14. Takeuchi, Fumihide, 2023. "Intermediate goods-skill complementarity and income distribution," MPRA Paper 116372, University Library of Munich, Germany.
    15. 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.
    16. Andrea Vaona, 2013. "Countervailing inequality effects of globalization and renewable energy generation in Argentina," Working Papers 12/2013, University of Verona, Department of Economics.
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    18. Collin Rabe & Andrea Waddle, 2018. "Leaving NAFTA:Implications for Inequality," 2018 Meeting Papers 831, Society for Economic Dynamics.

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    More about this item

    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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