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The Effects of Globalization on Skilled Labor, Unskilled Labor, and the Skill Premium

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  • Stephen J. Turnovsky

    (University of Washington)

  • Zinan Wang

    (Tianjin University)

Abstract

This paper numerically simulates a dynamic general equilibrium model of a small open economy highlighting the contrasting effects of different aspects of globalization on the skill premium. Trade liberalization in the form of reductions in consumption and input tariffs are both shown to reduce the short-run skill premium. Over time the lower consumption tariff reduces it further, while the lower input tariff increases it. Financial liberalization in the form of reduced financial frictions increases the skill premium in the short run, but reduces it over time. The sensitivity and robustness of these patterns to structural characteristics are addressed in detail. Overall, the results stress the importance of taking a disaggregated and dynamic approach to evaluate the effects of globalization on the skill premium.

Suggested Citation

  • Stephen J. Turnovsky & Zinan Wang, 2022. "The Effects of Globalization on Skilled Labor, Unskilled Labor, and the Skill Premium," Open Economies Review, Springer, vol. 33(3), pages 407-452, July.
    • Handle: RePEc:kap:openec:v:33:y:2022:i:3:d:10.1007_s11079-022-09666-6
    DOI: 10.1007/s11079-022-09666-6
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    More about this item

    Keywords

    Globalization; Skilled labor; Unskilled labor; Skill premium;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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