Unemployment,Wage Inequality and International Factor Movement in the Presence of Agricultural Dualism

This paper investigates how the international factor movements affect the unemployment and skilled–unskilled wage inequality with the existence of a modern agricultural sector. Our research has the new feature that we not only consider that the rural labor migrates to the urban sector but also to the modern agricultural sector. The main conclusions are that the unskilled labor outflow certainly decreases the wage inequality and unemployment rate and the influences that skilled labor movement and capital inflow have on wage inequality and unemployment rate are dependent on the factor intensity between the urban and modern agricultural sectors.     

Can International Factor Mobility Reduce Wage Inequality in a Dual Economy?*

This paper analyzes the consequences of international factor movements on the skilled–unskilled wage inequality in a dual‐economy set‐up that includes unemployment and three intersectorally mobile factors of production—unskilled labor, skilled labor, and capital. Thus far, theoretical literature on this subject has adopted the full‐employment framework and hence ignored the problem of unemployment. The analysis in this paper reveals that the results crucially depend on the difference in the intersectoral factor intensities between skilled labor and capital. In particular, it demonstrates the existence of a possibility of deterioration in wage inequality following foreign unskilled‐labor inflow.     

Tax Competition and Economic Integration

This article examines the role of tax competition and economic integration in a core–periphery setting, where agglomeration forces are present. I present a New Economic Geography model, which accounts for firm entry/exit and international mobility of skilled labor employed in the public R&D sectors. In contrast to other literature on tax competition, I focus on its impact on labor migration and net earnings of skilled and unskilled labor. Economic integration is modeled as trade liberalization, an easing of factor mobility restrictions and technology diffusion. I find that tax competition favors skilled labor when trade costs are reduced. In contrast, unskilled labor benefits when factor mobility restrictions are eased and technology diffusion is enhanced.     

Unemployment and International Factor Movement in the Presence of Skilled and Unskilled Labor

Widespread unemployment has been observed in some developing countries. On the other hand, extensive movement of labor across countries has also been observed. Therefore, in order to examine the interaction between the domestic and international labor markets, this paper develops a model that includes unemployment, international factor movement, and the difference between skilled and unskilled labor. The model examines the effect of production subsidies on unemployment and evaluates their effectiveness as a possible policy in order to alleviate the problem of unemployment. Further, this paper investigates the effects of international factor movement on unemployment and welfare.     

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.     

Economic recession, skilled unemployment and welfare

The paper develops a three-sector, specific factor, general equilibrium model with two high-skill sectors and unemployment of skilled labor. One of the two high-skill sectors produces a non-traded commodity whose aggregate demand consists of both domestic demand and an exogenously given foreign demand. The consequences of a decline in the foreign demand for the non-traded good resulting from worldwide economic recession on the skilled and unskilled labor markets in a developing economy have been examined. The analysis finds that the effects on the labor markets crucially hinge on the relative factor intensities of the two high-skill sectors and that through the adoption of appropriate fiscal measures; the country can shield its workforce from the rage of global economic downturn.     

Intra‐industry Trade Liberalization: Why Skilled Workers are More Likely to Support Free Trade

This paper presents a theoretical model and empirical analysis that connects the prevalence of intra‐industry trade with increased wage inequality from trade liberalization in both skilled and unskilled labor abundant countries. The Stolper–Samuelson effect is incorporated into an intra‐industry trade liberalization (intra‐ITL) hypothesis where skilled labor opposes protectionism in all countries engaged in intra‐industry trade because skilled workers gain at the expense of unskilled workers from multilateral trade liberalization within the skill‐intensive sector. We examine empirical evidence on whether skilled individuals are more supportive of trade liberalization than unskilled individuals across 31 countries with different levels of intra‐industry trade and skill endowments. We find that the extent to which countries engage in intra‐industry trade in high‐tech commodities is strongly linked with the intensity of opposition to protection by skilled labor. Regression results strongly support our hypothesis that skilled workers, almost everywhere, are more likely to support free trade.     

Factor‐biased public infrastructure and wage inequality

This paper analyzes how factor‐biased public infrastructure affects the skilled–unskilled wage inequality. In the basic model with a full employment economy, we find that when the weighted dependence of skilled labor and capital in the urban skilled sector on public infrastructure is large enough relatively to that of unskilled labor and capital in the urban unskilled sector, the wage inequality will be expanded. We also discuss labor‐biased and capital‐biased public infrastructure in our framework, and find that the relative dependences of relevant labor or capital on public infrastructure are important determinants of wage inequality. In the extended models, we analyze separately the issue of wage inequality in the economy with unemployment and the totally open capital market, and find the results of the basic model almost still hold.     

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.     

Would a North-South Free Trade Agreement Hurt Unskilled Labor in the North?

I present a simple model to examine the impact of international outsourcing on the welfare of skilled and unskilled labor. In this model, specialized business services are to facilitate manufacturing production, creating additional welfare gains in the presence of positive production externalities. Policies that favor the business service sector contribute to the development of a larger bundle of specialized business services, generating more welfare gains to not only skilled but also unskilled labor. Thus, a country’s unskilled labor is not necessarily worse off with open trade if the country is prosperous in business service provisions.     

Anti‐immigration policy in the destination country and skilled–unskilled wage inequality in a source economy with or without unemployment

This paper is aimed at theoretically examining the consequence of the anti‐immigration policy adopted in the destination country on the skilled–unskilled wage inequality in a source nation using a couple of two‐sector, specific‐factor general equilibrium models in both the presence and absence of unemployment. Emigration requires incurring some capital cost for professional skill formation on the part of every prospective emigrant that adds to the opportunity cost of emigration. The authority of the destination country determines the number of visas to be granted and hence directly controls the magnitude of skilled emigration from the source country. In the migration equilibrium, the expected skilled wage income abroad is equal to the opportunity cost of emigration. In both the presence and absence of unemployment of unskilled labor, the outcome of the policy on the wage inequality crucially hinges on both the magnitude of the fixed cost of emigration and the technological factors. In the specific‐factor Harris–Todaro model, the degree of imperfection in the unskilled labor market is an additional factor. Finally, some policy recommendations have been made for protecting the interest of the poor unskilled workforce.     

An Analysis of Income Distribution between the North and the South: the Grossman–Helpman and Lai Results Re‐examined*

This paper studies the effects of labor supply on relative wages in a dynamic North–South model of trade. Lai (1995 )—a generalization of the Grossman and Helpman (1991a,b , ch. 11) models—showed that the relative wage of skilled (unskilled) labor in a region is positively (negatively) related to the supply of skilled (unskilled) labor in that region. These surprising results depend crucially on the specification of the functional form of the Southern imitation activity. We will show that these results (except for the relative wage of unskilled labor in Lai) are reversed in the case where the productivity of imitation depends only on the number of products the North manufactures.     

Extensive and Intensive Margins of Exports and Labor Heterogeneity

This paper investigates how changes in skilled and unskilled labor supply affect different margins of exports. Using bilateral trade data in manufacturing sectors of 34 countries from 1995 to 2010, we find that most of the impact of skilled labor on exports goes through the intensive margin, whereas most of the effect of unskilled labor works through the extensive margin. These outcomes result from the impact of labor skill composition on the productivity cut‐off of exporters. We also find that the impact of skilled and unskilled labor on trade margins depends on the income level of countries and on the type of products. The results indicate that the effect of skilled labor is greater for low‐income countries and differentiated products, while that of unskilled labor is greater for high‐income countries and homogeneous products.     

WHY HAVE AGGREGATE SKILLED HOURS BECOME SO CYCLICAL SINCE THE MID‐1980s?*

We document and discuss a dramatic change in the cyclical behavior of aggregate skilled hours since the mid‐1980s. Using CPS data for 1979:1–2003:4, we find that the volatility of skilled hours relative to the volatility of GDP has nearly tripled since 1984. In contrast, the cyclical properties of unskilled hours have remained essentially unchanged. We evaluate whether a simple supply/demand model for skilled and unskilled labor with capital‐skill complementarity in production can help explain this stylized fact. Our model accounts for about 60% of the observed increase in the relative volatility of skilled labor.     

International Outsourcing and Unemployment in a Minimum‐wage Economy

To explore the impact of international outsourcing on unemployment and social welfare, the conventional trade model is extended by including both economies of scale and a minimum‐wage constraint in the unskilled‐labor market. In the paper, the scale economies are linked with the production of the most skill‐intensive good. It is shown that within such a framework, there is a trade‐off between a more socially desirable endowment allocation and a greater level of employment. Therefore, even though outsourcing could raise aggregate employment, this benefit is at the cost of further exacerbating the resource misallocation. In this way, the extensions to the traditional framework explored in the paper generate new insights as to why outsourcing may cause a net welfare loss to the home country.     

Employment effects of stabilization policies

This paper studies the effects of a stabilization program based on a reduction in the devaluation rate in an optimizing model with capital controls, minimum wages for unskilled labor, an informal sector, and public production of intermediate inputs. Perfect mobility across sectors of the unskilled labor force prevents the emergence of unemployment for that category of labor, but skilled unemployment prevails in equilibrium. The analysis highlights the role of endogenous labor market segmentation in assessing the wage and employment effects of stabilization policies.     

A Schumpeterian model of equilibrium unemployment and labor turnover

This paper constructs a general equilibrium model of equilibrium unemployment by combining an endogenous growth model with a variant of equilibrium search theory. The analysis offers two explanations for the causes of widening wage gap between skilled and less-skilled labor, and rising unemployment rate among the less skilled: technological change in the form of an increase in the size of innovations or skilled labor saving technological change in R&D activity. In addition, the model identifies two distinct effects of faster technological progress on the aggregate unemployment rate. First, it increases the rate of labor turnover and therefore increases the aggregate unemployment rate – the creative destruction effect. Second, it creates R&D jobs, which offer workers complete job security, and consequently reduces the aggregate unemployment rate – the resource reallocation effect.     

Welfare Effects of Immigration Policies in the Presence of Skilled,Unskilled Labor and Capital Mobility

This paper investigates the welfare consequences of immigration policies in a model with two types of labor, skilled and unskilled, and international capital mobility. The paper examines the effect of government policies, which change the immigration cost and cause immigration of one type of labor, on the welfare of natives, when the other types of labor and/or capital are also mobile. It is shown, for example, in the absence of capital mobility, if skilled and unskilled labor are highly complementary in production, then a decrease in the immigration cost of the net fiscal contributor skilled labor that causes its immigration, decreases the welfare of natives.     

Corporate profit tax,firm entry with unemployment,and income inequality

In this paper, we provide a general equilibrium analysis of corporate profit tax on income distribution, unemployment, and wage inequality. With firm dynamics in industrial sector, we identify a new channel through which profit tax affects income and wage inequality: profit tax cut will widen not only the wage gap between skilled and unskilled labor, but also exacerbate the wage inequality of unskilled labor among different sectors. The welfare effect of profit tax cut depends on unemployment deepening (labor-distortion effect) and more manufacturing firms enter the market (business-creation effect), eroding the market share of incumbent firms (business-stealing effect).     

Labour-market institutions, (un)employment,wages, and growth: theory and data

We analyse the implications of labour-market institutions on wage inequality in favour of skilled labour, on relative unemployment of unskilled labour, and on the economic growth rate in two clusters resulting from 27 OECD countries: Cluster 1, closely related with the Anglo-Saxon model, and Cluster 2, dominated by the Continental-European model. By linking the unskilled wage to the skilled one in Cluster 2, due to the indexation of social benefits to per-capita income, we accommodate the observed paths of the three variables in both clusters between 1991 and 2008: Cluster 1 presents a higher wage inequality in favour of skilled labour, a lower unemployment of the unskilled labour, and a better economic growth rate.