Labour mobility and the redistributive effects of trade integration |
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Authors: | Carlo Devillanova Michele Di Maio Pietro Vertova |
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Institution: | 1. Department of Institutional Analysis and Public Management (IAM) and Econpubblica, Bocconi University, Via Roentgen 1, 20136, Milan, Italy 2. Department of Economic Studies, University of Naples “Parthenope”, Via Medina 40, 80133, Naples, Italy 3. Department of Economics, University of Bergamo, via dei Caniana, 2, 24127, Bergamo, Italy
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Abstract: | This paper addresses the role of mobility costs in shaping the effects of trade integration on wage inequality and welfare.
We present a three-factor, two-sector model in which the production technology exhibits capital-skill complementarity and
the cost of moving across sectors differs between unskilled and skilled workers. Results show that trade integration increases
aggregate welfare, but it also raises wage inequality, both within and across skill categories. We also model a public re-training
program, financed by a proportional tax levied on skilled workers, which reduces the mobility cost of unskilled workers. We
show that even if the re-training programme entails some welfare losses, it can reduce both within and between wage inequality,
while still making free trade Pareto superior with respect to the no-trade regime. |
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