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Skill‐biased heterogeneous firms, trade liberalization and the skill premium

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  • James Harrigan
  • Ariell Reshef

Abstract

We propose a theory that rising globalization and rising wage inequality are related because trade liberalization raises the demand facing highly competitive skill‐intensive firms. In our model, only the lowest‐cost firms participate in the global economy exactly along the lines of Melitz. In addition to differing in their productivity, firms differ in their skill intensity. We model skill‐biased technology as a correlation between skill intensity and technological acumen, and we estimate this correlation to be large using firm‐level data from Chile in 1995. A fall in trade costs leads to both greater trade volumes and an increase in the relative demand for skill, as the lowest‐cost/most‐skilled firms expand to serve the export market while less skill‐intensive non‐exporters retrench in the face of increased import competition. This mechanism works regardless of factor endowment differences, so we provide an explanation for why globalization and wage inequality move together in both skill‐abundant and skill‐scarce countries. In our model countries are net exporters of the services of their abundant factor, but there are no Stolper‐Samuelson effects because import competition affects all domestic firms equally. Firmes hétérogènes à différentes intensité d'habileté, libéralisation du commerce, et prime à l'habileté. On propose une théorie qui suggère que mondialisation croissante et inégalité croissante des salaires sont co‐reliées parce que la libéralisation du commerce accroît la demande des firmes hautement compétitives et à forte intensité d'habileté. Dans le modèle qu'on propose, seules les firmes aux coûts les plus faibles participent à l'économie mondiale, ainsi que le suggère Melitz. En plus de différer par leur productivité, les firmes diffèrent aussi par l'intensité d'utilisation de l'habileté. On caractérise la technologie à intensité d'habileté comme une corrélation entre intensité d'habileté et sagacité technologique, et on estime que cette corrélation est grande en utilisant des données au niveau de la firme pour le Chili en 1995. Une baisse des coûts du commerce entraîne à la fois une croissance du volume du commerce et de la demande relative d'habileté, à proportion que les firmes à plus faibles coûts et utilisant plus intensivement l'habileté prennent de l'expansion pour servir le marché d'exportation, alors qu'il déclin des firmes non‐exportatrices et utilisant moins intensément l'habileté face à la concurrence accrue des importations. Ce mécanisme est en opération quelle que soit les différences dans la dotation des facteurs, et fournit une explication de pourquoi mondialisation et inégalité des salaires vont de pair à la fois dans les pays où l'habileté est abondante et là où il y a rareté. Dans le modèle proposé, les pays sont exportateurs nets des services de leur facteur abondant, mais il n'y a pas d'effet Stolper‐Samuelson, la concurrence de l'importation affecte toutes les firmes domestiques également.

Suggested Citation

  • James Harrigan & Ariell Reshef, 2015. "Skill‐biased heterogeneous firms, trade liberalization and the skill premium," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 48(3), pages 1024-1066, August.
  • Handle: RePEc:wly:canjec:v:48:y:2015:i:3:p:1024-1066
    DOI: 10.1111/caje.12167
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    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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