Trade liberalization and the wage gap: the role of vertical linkages and fixed costs
This paper studies the labor market impacts of trade liberalization, and
specifically tariff reductions, with a focus on the wage gap between skilled and
unskilled workers in presence of vertical linkages in the fixed costs of production.
To that purpose, we develop and empirically test a monopolistic competition model
with variable elasticity of substitution and labor differentiated by skill level, where
skilled workers are the residual claimants of savings on imported inputs. Consistently
with the model predictions, we find that a 10% reduction in tariffs implies on
average a 3.8% increase in the wage gap. In addition, the same level of tariff
reduction is expected to lower unskilled employment in domestic production by
3.3%, which is partially offset by an expansion of unskilled employment in the
export segment of production. These results are obtained matching detailed international
trade data with World Input–Output Tables and EU KLEMS data on
country-sector wage by skill level on 17 OECD countries from 1996 to 2005.
DI COMITE Francesco;
NOCCO Antonella;
OREFICE Gianluca;
2017-11-09
SPRINGER
JRC92701
1610-2878,
https://link.springer.com/article/10.1007%2Fs10290-017-0293-1,
https://publications.jrc.ec.europa.eu/repository/handle/JRC92701,
10.1007/s10290-017-0293-1,
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