Working Paper: CEPR ID: DP2262
Authors: Paolo Manasse; Alessandro Turrini
Abstract: We study the effect of 'globalization' on wage inequality. Our 'global' economy resembles Rosen's (1981) 'Superstars' economy, where a) innovations in production and communication technologies enable suppliers to reach a larger mass of consumers and to improve the (perceived) quality of their products and b) trade barriers fall. When transport costs fall, income is redistributed away from the non-exporting to the exporting sector of the economy. As the former turns out to employ workers of higher skill and pay, the effect is to raise wage inequality.Whether the least skilled stand to lose or gain from improved production or communication technologies, in contrast, depends on whether technology is skill-complementary, or a substitute. The model gives an intuitive explanation for the empirical regularities that skill intensity, market size and wages tend to be positively associated with exporting activity across sectors and plants.
Keywords: International Trade; Wage Inequality; Technological Change
JEL Codes: F12; F16; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| reduced trade barriers (F15) | redistribution of income from non-exporting to exporting firms (F16) |
| globalization (F60) | wage inequality (J31) |
| exporting firms employ higher-skilled workers (J24) | wage inequality (J31) |
| technological advancements (O33) | ambiguous effects on wages (J31) |
| trade integration (F15) | wage inequality (J31) |
| improvements in production technologies (O49) | wage outcomes for less skilled workers (F66) |
| globalization and technological change (O33) | labor market outcomes (J48) |