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Globalization and wage premia: reconciling facts and theory

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  • Strauss-Kahn, Vanessa

Abstract

This paper analyzes the e¤ect of globalization on wage premia by studying the interaction between trade costs, firms’ location decision, and relative demand for labor. It suggests that globalization, through vertical specialization and/or agglomeration, increases inequality in countries with a relative abundance of skilled workers in a way that is observationally equivalent to skilled-biased technological progress (i.e., joint increases in the wage premium and the within-industry skilled–unskilled employment ratio). This confirms the potential role of international trade in explaining the observed increase in wage inequality between skilled and unskilled workers that has occurred in most industrialized countries since the mid- 1970s. Calibration of the model supports this result. It shows that NAFTA has contributed significantly to the observed increase in the U.S. wage premium.

Suggested Citation

  • Strauss-Kahn, Vanessa, 2003. "Globalization and wage premia: reconciling facts and theory," MPRA Paper 20410, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:20410
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    References listed on IDEAS

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    More about this item

    Keywords

    Agglomeration; Intermediate Inputs; Skilled/Unskilled Wages; Trade Liber- alization; Vertical Specialization.;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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