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Globalization and wage premia: reconciling facts and theory

  • Strauss-Kahn, Vanessa

This paper analyzes the e¤ect of globalization on wage premia by studying the interaction between trade costs, firms’ location decision, and relative demand for labor. It suggests that globalization, through vertical specialization and/or agglomeration, increases inequality in countries with a relative abundance of skilled workers in a way that is observationally equivalent to skilled-biased technological progress (i.e., joint increases in the wage premium and the within-industry skilled–unskilled employment ratio). This confirms the potential role of international trade in explaining the observed increase in wage inequality between skilled and unskilled workers that has occurred in most industrialized countries since the mid- 1970s. Calibration of the model supports this result. It shows that NAFTA has contributed significantly to the observed increase in the U.S. wage premium.

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File URL: https://mpra.ub.uni-muenchen.de/20410/1/MPRA_paper_20410.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20410.

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Date of creation: Aug 2003
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Handle: RePEc:pra:mprapa:20410
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  1. Maurice Obstfeld and Kenneth Rogoff., 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research (CIDER) Working Papers C00-112, University of California at Berkeley.
  2. Robert C. Feenstra, . "Integration Of Trade And Disintegration Of Production In The Global Economy," Department of Economics 98-06, California Davis - Department of Economics.
  3. Donald R. Davis & David E. Weinstein, 1997. "Economic Geography and Regional Production Structure: An Empirical Investigation," Harvard Institute of Economic Research Working Papers 1802, Harvard - Institute of Economic Research.
  4. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment Updates and Implications," NBER Working Papers 7911, National Bureau of Economic Research, Inc.
  5. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
  6. James Harrigan, 2000. "International Trade and American Wages in General Equilibrium, 1967-1995," NBER Chapters, in: The Impact of International Trade on Wages, pages 171-196 National Bureau of Economic Research, Inc.
  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. Donald R. Davis & David E. Weinstein, 2001. "Do Factor Endowments Matter for North-North Trade?," NBER Working Papers 8516, National Bureau of Economic Research, Inc.
  9. Venables, Anthony J, 1993. "Equilibrium Locations of Vertically Linked Industries," CEPR Discussion Papers 802, C.E.P.R. Discussion Papers.
  10. Harrigan, James, 1993. "OECD imports and trade barriers in 1983," Journal of International Economics, Elsevier, vol. 35(1-2), pages 91-111, August.
  11. Jose Campa & Linda S. Goldberg, 1997. "The Evolving External Orientation of Manufacturing Industries: Evidence from Four Countries," NBER Working Papers 5919, National Bureau of Economic Research, Inc.
  12. Stephen Machin & Annette Ryan & John Van Reenen, 1996. "Technology and changes in skill structure: Evidence from an international panel of industries," IFS Working Papers W96/06, Institute for Fiscal Studies.
  13. David L. Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports 72, Federal Reserve Bank of New York.
  14. Lawrence F. Katz & Gary W. Loveman & David G. Blanchflower, 1993. "A Comparison of Changes in the Structure of Wages," NBER Working Papers 4297, National Bureau of Economic Research, Inc.
  15. 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.
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