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Skill Differentiation and Income Disparity in a Decentralized Matching Model of North-South Trade

Author

Listed:
  • Hesham M. Abdel-Rahman

    (Department of Economics and Finance, University of New Orleans)

  • George Norman

    (Department of Economics, Tufts University)

  • Ping Wang

    (Department of Economics, Vanderbilt University)

Abstract

This paper develops a North-South trade model in which the South produces food and the North produces both food and a high-tech good. Food production is undertaken by unskilled workers while the high-tech product is made only by horizontally differentiated skilled workers. Due to the possibility of a peer-group effect, we allow the unskilled workers in the North to be equally or more productive than in the South. Horizontal matching of skilled workers is generally imperfect and the skilled wages are determined by a symmetric Nash bargain. We characterize two different types of equilibrium: a closed-economy equilibrium without trade and a free trade equilibrium without labor mobility. We then extend the benchmark framework to consider the presence of transport costs. In all cases with trade, the equilibrium properties of goods pricing, the volume of trade and wage disparities are examined.

Suggested Citation

  • Hesham M. Abdel-Rahman & George Norman & Ping Wang, 2001. "Skill Differentiation and Income Disparity in a Decentralized Matching Model of North-South Trade," Vanderbilt University Department of Economics Working Papers 0131, Vanderbilt University Department of Economics.
    • Handle: RePEc:van:wpaper:0131
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    References listed on IDEAS

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    Cited by:

    1. George Norman & Lynne Pepall & Dan Richards, 2001. "Versioning, Brand-Stretching, and the Evolution of e-Commerce Markets," Discussion Papers Series, Department of Economics, Tufts University 0114, Department of Economics, Tufts University.

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    More about this item

    Keywords

    Skill heterogeneity and matching; North-South trade; wage inequality;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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