Market Interconnection and Wages
We study the impacts of terms trade changes on absolute and the real wages of skilled and unskilled labor and their gaps for an economy specialized in export production. We show an interesting result where wage behavior as well as the skilled-unskilled wage gap depend on elasticity of import demand, unlike in 3x2 classical-neoclassical speci c-factor model of trade. Although, our analysis is in the spirit of Stolper-Samuelson theorem, given the structure of our model, factor intensity plays no role in our results as in the speci c-factor model.
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