Institution: | aGEP, University of Nottingham, School of Economics, University Park, Nottingham NG7 2RD, United Kingdom bMurphy Institute of Political Economy, 108 Tilton Hall, Tulane University, New Orleans, Louisiana 70118-5698 USA |
Abstract: | This paper analyzes the effects of global and national technological change on employment and relative wages in an integrated two-country world (“Europe” and “America”), where both countries are characterized by equilibrium unemployment due to fair wage constraints. The asymmetry between the countries arises from country-specific preferences towards wage inequality, with Europe's preferences being more egalitarian. Furthermore, we look at integration between this two-country world and a third country (“low-wage south”). We derive an analytical tool, the Virtual Integrated Equilibrium, that allows us to adapt Dixit and Norman's Integrated Equilibrium approach to a situation where both countries have endogenous unemployment levels. |