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Wage inequality in trade-in-tasks models

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  • Hugo Rojas-Romagosa

Abstract

Recent trade-in-tasks models suggest that relative low-skill wages may increase when low-skill tasks are offshored. However, using extensive numerical simulations of these models we find that wage inequality is increasing for almost all endowment combinations when we use a broad range of parameter values and model specifications. The most common exception is when the country is relatively small and cannot affect international prices. In the case of relatively poor lowskill abundant countries, we find that offshoring is always welfare improving, but wage inequality effects are ambiguous. Finally, we find that a trade-intasks model with three skill-types can also account for wage polarization when we allow medium-skill tasks to be offshored.

Suggested Citation

  • Hugo Rojas-Romagosa, 2011. "Wage inequality in trade-in-tasks models," CPB Discussion Paper 196, CPB Netherlands Bureau for Economic Policy Analysis.
    • Handle: RePEc:cpb:discus:196
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    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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