Kiel Working Papers, Kiel Institute for World Economics
No 1042:
Explaining Intra- and Intersectoral Wage Differentials in Simple General Equilibrium Trade Models
Julius Spatz
Abstract: The labour markets in the developed countries have
experienced two fundamental changes in recent years. Firstly, high-skilled
workers have gained at the expense of low-skilled workers, which manifests
itself in a rising skill premium and/or a rising disparity in the
unemployment rates of these two skill groups. Secondly, sectors with low
wage levels have expanded while sectors with high wage levels have
contracted. By presenting two insider-outsider general equilibrium models,
which analyse the impact of trade on both dimensions of income
distribution, this paper seeks to contribute to the ongoing debate on
whether the progressing globalisation of the world economy is to blame for
these two trends. From this analysis, two important results emerge.
Firstly, the distributional effects of trade are highly sensitive to even
minor changes to the assumption of the 2 x 2 trade model. This suggests
that due attention should be paid to the choice of the structural model.
Secondly, there might be a bias inherent to the „mandated-wage approach"
that makes most empirical studies fail to find a strong influence of trade
on the skill premium.
Keywords: trade, income distribution, real rigidities, insider-outsider model; (follow links to similar papers)
JEL-Codes: F11; J31; (follow links to similar papers)
47 pages, April 2001
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