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The Role of Intangible Capital in Explaining Wage Inequality Between Skilled and Unskilled Workers

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  • Dong, Qi Hong
  • Miller, Michael S.

Abstract

Trade liberalization and technological improvement have made the movement of intangible capital feasible. Once the accumulated tangible capital reaches a certain level, its lower unit cost will attract the inflow of intangible capital, which will demand higher-skilled-workers. This paper analyzes the role of intangible capital in raising the wages for skilled workers in both developed and developing countries. Drawing on the outsource model by Feenstra, we develop an expanded model with four rather than three inputs: skilled and unskilled labour, and tangible and intangible capital. A production function, a long-run cost function, and a unit-cost function for the final good are derived to illustrate theoretically that the flow of intangible capital can be one source of the wage inequality for both developing and developed countries.

Suggested Citation

  • Dong, Qi Hong & Miller, Michael S., 2009. "The Role of Intangible Capital in Explaining Wage Inequality Between Skilled and Unskilled Workers," The Journal of Economic Asymmetries, Elsevier, vol. 6(1), pages 105-117.
    • Handle: RePEc:eee:joecas:v:6:y:2009:i:1:p:105-117
    DOI: 10.1016/j.jeca.2009.01.008
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    References listed on IDEAS

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    1. Xu, Bin, 2003. "Trade liberalization, wage inequality, and endogenously determined nontraded goods," Journal of International Economics, Elsevier, vol. 60(2), pages 417-431, August.
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    3. Robert E. Hall, 2001. "The Stock Market and Capital Accumulation," American Economic Review, American Economic Association, vol. 91(5), pages 1185-1202, December.
    4. Robert Z. Lawrence & Matthew J. Slaughter, 1993. "International Trade and American Wages in the 1980s: Giant Sucking Sound or Small Hiccup?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2 Microec), pages 161-226.
    5. Leamer, Edward E, 1996. "Wage Inequality from International Competition and Technological Change: Theory and Country Experience," American Economic Review, American Economic Association, vol. 86(2), pages 309-314, May.
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    More about this item

    Keywords

    F12; F13; F43; Wage inequality; Skilled-labour demand; Intangible capital;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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