China wage inequality: the role of trade and technology

This article empirically investigates the impact of international trade and technical change on skill premia for a panel of 28 manufacturing sectors in China over the period 2002–2011. The results find that the effect of changes of the share of SOEs is twofold. First, the contraction of SOEs promoted productivity growth, and the promoting effect was skill-biased, which tended to increase the skill premia in China. Second, the drop of product prices resulting from falling SOEs share was more magnificent in skill-intensive industries, which helped to mitigate wage inequality through product prices. The accounted-for portion of price changes by productivity growth was skill-biased, significantly raising skill premia through product prices. However, the portion of price changes accounted for by foreign price was unskill-biased, and world price competition diminished the growing income disparity in China.     

贸易自由化、有偏的学习效应与发展中国家的工资差异

本文构建了一个模型来研究贸易自由化对熟练劳动力与非熟练劳动力工资差异的影响,从而解释发展中国家工资差异之谜。在贸易自由化之后,发展中国家接触和学习到相对多的与熟练劳动力匹配的技术知识,因此,和生产与非熟练劳动力匹配的技术知识相比,生产与熟练劳动力匹配的技术知识的生产力水平上升相对较多。也就是说,学习效应是有偏的。因为技术知识的生产是熟练劳动力密集型的,所以学习效应会导致对熟练劳动力需求的增加,扩大工资差异。同时,有偏的学习效应会使技术进步更偏向于技能密集型,从而进一步导致对熟练劳动力需求的增加,扩大工资差异。     

Patterns of Skill Premia

This paper develops a model to analyse how skill premia differ over time and across countries, and uses this model to study the impact of international trade on wage inequality. Skill premia are determined by technology, the relative supply of skills, and trade. Technology is itself endogenous, and responds to profit incentives. An increase in the relative supply of skills, holding technology constant, reduces the skill premium. But an increase in the supply of skills over time also induces a change in technology, increasing the demand for skills. The most important result of the paper is that increased international trade induces skill-biased technical change. As a result, trade opening can cause a rise in inequality both in the U.S. and the less developed countries, and thanks to the induced skill-biased technical change, this can happen without a rise in the relative prices of skill-intensive goods in the U.S., which is the usual intervening mechanism in the standard trade models.     

Trade, Technology and UK Wage Inequality

This paper examines the impact of international trade and technical change on changes in the UK skill premium. We first measure trade as changes in product prices and technical change as TFP growth. Then we relate price and TFP changes to a set of underlying forces. Among our results are (a) changes in prices, not TFP, were the major force behind the rise in inequality in the 1980s; (b) changes in OECD prices and UK tariffs significantly raised 1980s skill premia through their effects on prices, and that industry concentration significantly raised 1980s skill premia through its effect on TFP.     

Trade,Wages, and Specific Factors*

In this paper, we use a multisector specific‐factors model with sector‐specific capital and two mobile factors, skilled and unskilled labor, to examine the effects of trade, technology, and factor endowments on the skill premium in US manufacturing industries. Based on this model and data for the US manufacturing sector from 1958–96, we calculate changes in the skill premium and then carry out a decomposition to identify the changes caused by product price changes (trade), technological progress, labor, and capital endowment changes. The decomposition reveals that trade effects, working through product price changes, caused the skill premium to increase moderately. Changes in capital endowments (new investments) had a positive effect on the skill premium, with the strongest impact during the 1980s, while the effect of technological change on the skill premium varied over time. Finally, changes in relative labor endowments had a negative effect on the skill premium.     

Trade and inequality in a directed search model with firm and worker heterogeneity

This paper integrates the insight that exporting firms are typically more productive and employ higher‐skilled workers into a directed search model of the labour market. The model generates a skill premium as well as residual wage inequality among identical workers. A trade liberalization increases the skill premium and likely increases residual inequality among high‐skilled workers. The calibrated model generates results consistent with the prior literature examining the effect of the Canada‐US Free Trade Agreement on the Canadian labour market: a significant decrease in employment in manufacturing, but only a small change in unemployment and wages.     

TRADE,TECHNOLOGICAL CHANGE,AND WAGE INEQUALITY: THE CASE OF MEXICO

Following the U.S.–Mexico trade integration, the skill premium rose dramatically in Mexico. Standard trade theory predicts the skill premium in a skill‐scarce country should fall—not rise—following such an integration. This article reconciles theory and data by building a model in which intermediate producers in Mexico begin to produce for the U.S. supply chain following liberalization. To do so, they must rent ideas from the United States, which are more skill‐intensive, thus increasing the skill premium. This mechanism is supported by the data: Mexican plants and industries that trade more with the United States rent more U.S. technology and have higher skill premia.     

Factor price overshooting with trade liberalization: theory and evidence

This paper develops an intra‐industry trade model with skilled and unskilled labor as factors of production, endogenous accumulation of skilled labor and firm heterogeneity in factor intensities to examine the effect of trade reforms on factor prices. Since exporters are more skill intensive than non–exporters, a decrease in trade barriers initially increases wage inequality between skilled and unskilled workers, as a result of an increase in the relative demand for skilled labor. Over time, however, as agents respond to the change in relative wages by investing in skilled labor, the relative wage of skilled labor decreases. Evidence from Chilean plant–level data supports the idea of factor price overshooting with trade liberalization.     

The Supply of Skilled Labour and Skill-biased Technological Progress

This paper presents a model in which the adoption of skill-biased or 'unskilled-biased' technologies is endogenous. In this model of endogenous technology choice, an increase in the supply of skilled labour leads to a temporary fall in the skill premium, followed by an expanding gap between the wages of skilled and unskilled workers as technologies adjust towards the more skill-intensive mix appropriate for the greater skill of the workforce. The adjustment in the technology mix results in slower output growth along the transition path.     

Trade Liberalization and the Relative Wages for More-Skilled Workers in Costa Rica

A prominent argument regarding the effects of trade liberalization on the dispersion of wages in LDCs is that trade liberalization should lower the relative demand for more-skilled workers by inducing between-sector shifts towards sectors intensive in unskilled labor. Based on a disaggregating, nonparametric approach that imposes little structure on the data, the paper presents evidence that trade liberalization in Costa Rica led to an increase in relative demand. Other findings are consistent with the "skill-enhancing-trade hypothesis," whereby trade liberalization induces an acceleration of physical capital imports, which raises relative demand through capital–skill complimentarily.     

International trade,technological change and wage inequality in the UK economy

This paper examines the joint impact of international trade and technological change on UK wages across different skill groups. International trade is measured as changes in product prices and technological change as total factor productivity (TFP) growth. We take account of a multi-sector and multi-factor of production economy and use mandated wage methodology in order to create an well-balanced approach in terms of theoretical and empirical cohesion. We use data from the EU KLEMS database and analyse the impact of both product price changes and TFP changes of 11 UK manufacturing sectors on factor rewards of high-, medium- and low-skilled workers. Results show that real wages of skill groups are significantly driven by the sector bias of price change and TFP growth of several sectors of production. Furthermore, we estimate the share of the three different skill groups on added value for each year from 1970 to 2005. The shares indicate structural change in the UK economy. Results show a structural change owing to decreasing shares of low-skilled workers and increasing shares of medium-skilled and high-skilled workers over the years.     

Trade between symmetric countries,heterogeneous firms,and the skill premium

Abstract This paper examines the effects of trade liberalization between symmetric countries on the skill premium. I introduce skilled and unskilled labour in a model of trade with heterogeneous firms à la Melitz (2003) and assume a production technology such that more productive firms are more skill intensive. I show that the effects of trade liberalization on wage inequality crucially depend on the type of trade costs considered and on their initial size. While fixed costs of trade have a potentially non‐monotonic effect on the skill premium, a drop in variable trade costs unambiguously and substantially raises wage inequality.     

A Regional Analysis of the Impact of Trade and Foreign Direct Investment on Wages in Mexico, 1984–2000

The conventional Heckscher–Ohlin model of trade predicts an equalizing effect of trade on wages in developing countries abundant in less‐skilled labor. Contrary to these predictions, skill premiums and skill demand increased in Mexico following trade liberalization. “New” trade theories have offered several channels through which trade can increase relative wages and demand for skilled workers. One such channel is foreign direct investment and outsourcing. Using the Mexican Household Income and Expenditure Survey (ENIGH) covering 1984–2000, the author examines the relationship between the demand for skill and maquiladora employment across regions and states. In contrast to previous studies based on manufacturing data for the 1980s, little evidence is found that growth in maquiladora employment is positively related to the increase in relative wages or wage‐bill share of more educated workers.     

技能型技术进步、南北贸易与工资不平衡

本文试图将技能型技术进步与产业内贸易置于一个框架中对工资不平衡现象进行理论解释。自由贸易通过促使发达国家产品质量阶梯提升型的技术进步而加剧了该国的工资不平衡程度;同时,自由贸易通过促使发展中国家产品种类数增加型的技术进步而加剧了该国的工资不平衡程度。南北贸易在拉大相对工资差距的同时促进了技能型技术进步。     

Relative wages and trade-induced changes in technology

We develop a model where trade liberalization leads to skill-biased technological change, which in turn raises the relative return to skilled labor. When firms get access to a larger market, the relative profitability of different technologies changes in favor of the more skill-intensive technology. As the composition of firms changes to one with predominantly skill-intensive firms, the relative demand for skilled labor increases. This way, we establish a link between trade, technology and relative returns to skilled and unskilled labor.     

A Schumpeterian North–South Growth Model of Trade and Wage Inequality*

The paper presents a dynamic general‐equilibrium model of interindustry North–South trade that is used to analyze the effects of trade liberalization on the Northern wage distribution. Both countries have a low‐tech sector where consumer goods of constant quality are produced by use of unskilled labor. The North also has a high‐tech sector that employs skilled labor and features a quality‐ladder model structure with endogenous growth. Both innovation and skill acquisition rates are endogenously determined. In a balanced trade equilibrium, it is found that Southern‐originated (Northern‐originated) trade liberalization leads to an increase (decrease) in Northern wage inequality both between skilled and unskilled workers and within the group of skilled workers. The endogenous change in the Southern terms of trade determines the direction of change in unskilled wages in both the North and the South.     

The Choice of Structural Model in Trade–Wages Decompositions

This paper uses a calibrated general equilibrium model to decompose observed wage changes from trade and technology shocks into portions attributable to each source. It highlights some difficulties with the numerical performance of widely used theoretical trade structures. For small economies, the Heckscher–Ohlin model reveals specialization problems unless the price changes accompanying trade shocks are small. It can also yield strikingly different decompositions of the same wage change. A differentiated-goods model removes specialization problems and accommodates large price changes, but introduces demand-side responses greatly reducing the effect of trade on wages, and performs implausibly with sector-biased technical change.     

Skills scarcity and export intensity

We describe a model of trade with skills-based product differentiation and non-proportional trade costs that predicts a positive correlation between firms' export intensity, the price of their exports and the wages they pay to their workers. In equilibrium, firms that employ workers with comparatively scarcer skills export a larger proportion of their output, pay higher wages and charge higher prices. In line with empirical evidence, the model predicts that trade liberalization can cause the distribution of earnings to become more polarized, with patterns that reflect the heterogeneous effects of trade liberalization on firms' export performance.     

Tariff pass-through and the distributional effects of trade liberalization

This paper estimates the distribution of welfare gains due to the trade reforms in India by simultaneously considering the effect on prices of tradable goods and wages. The cost of consumption for each household is affected by the domestic price changes, while wage incomes adjust to these price changes in equilibrium. Three rounds of the Indian Employment and Consumption Surveys are used for the analysis. The price transmission mechanisms are estimated for both rural and urban areas to understand the extent to which the trade reforms are able to affect the domestic prices. In order to assess the distributional effects, a series of nonparametric local linear regressions are estimated. The findings show that households at all per capita expenditure levels had experienced gains as a result of the trade liberalization, while the average effect was generally pro-poor and varied significantly across the per capita expenditure spectrum.     

Could immigration explain wage inequality in a skill-biased technological model?

The aim of this paper is to evaluate how immigration of high-skilled workers affects the technological-knowledge bias and, in turn, the skill premium in the host countries, in particular bearing in mind the recent experience in a number of European countries. We study a skill-biased dynamic general equilibrium R&D growth model in which the standard R&D technology is modified so wage inequality results from the direction of the technological knowledge, which in turn is induced by the price channel. By solving the transitional dynamics numerically, we show that the rise of the skill premium arises from the price-channel effect, complemented with a mechanism that reflects the impact of immigration on R&D. According to our quantitative results, our model is able to account for a significant proportion of the dynamics of the skill premium in the data for a number of European countries, thus, suggesting that differences in labour skills between immigrants and natives are, in practice, an important source of skill premium variation over time.