Fragmentation, skill formation and international capital mobility
01 Mar 2020-The Singapore Economic Review (World Scientific Publishing Company)-Vol. 65, Iss: 02, pp 335-350
TL;DR: In the last few decades, an important feature of the on-going process of globalization is production fragmentation as discussed by the authors, and the growing importance of international fragmentation of production has been highlighted.
Abstract: During the last few decades an important feature of the on-going process of globalization is production fragmentation. Owing to the growing importance of international fragmentation of production p...
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TL;DR: In this paper , the authors considered the impact of a customs union formed between two small countries embedded in the global economy and trading in intermediates, in terms of a general equilibrium framework, and showed that with such a union both countries will gain, although there will be asymmetric effect on wage inequality.
Abstract: The article attempts to consider the impact of a customs union formed between two small countries embedded in the global economy and trading in intermediates, in terms of a general equilibrium framework. It shows that with such a union both countries will gain, although there will be asymmetric effect on wage inequality. However, with higher capital stock the significance of the formation of customs union will be undermined. It also shows that perfect international capital mobility will lead to finite changes in the economy, shutting down the less capital intensive unskilled export sector in each country, which in turn makes the bilateral union irrelevant. Further tariff reduction will increase inequality in both countries. We have also considered the welfare effects of formation of customs union in the form of tariff cut and such a tariff reduction unequivocally improves welfare of the customs union irrespective of small country and large country assumptions, without any intra-union income transfer. JEL Codes: F02, F11, F55, F68
References
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TL;DR: The authors suggests that the rapid increase in the proportion of college graduates in the United States labor force in 1970s may have been a causal factor in both the decline in the college premium during the 1970s and the large increase in inequality during the 1980s.
Abstract: A high proportion of skilled workers in the labor force implies a large market size for skill-complementary technologies, and encourages faster upgrading of the productivity of skilled workers. As a result, an increase in the supply of skills reduces the skill premium in the short run, but then it induces skill-biased technical change and increases the skill premium, possibly even above its initial value. This theory suggests that the rapid increase in the proportion of college graduates in the United States labor force in the 1970s may have been a causal factor in both the decline in the college premium during the 1970s and the large increase in inequality during the 1980s.
1,873 citations
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TL;DR: In this article, the authors examine the reduction in the relative employment and wages of unskilled workers in the U.S. during the 1980's and argue that a contributing factor to this decline was rising imports reflecting the outsourcing of production activities.
Abstract: In this paper we examine the reduction in the relative employment and wages of unskilled workers in the U.S. during the 1980's. We argue that a contributing factor to this decline was rising imports reflecting the outsourcing of production activities. In a theoretical model, we show that any increase in the Southern capital stock relative to that of the North, or neutral technological progress in the South, will increase the relative wage of skilled workers in both countries due to a shift in production activities to the South. Corresponding to this change in the relative wage is an increase in the price index of Northern activities within each industry, relative to that of the South. We confirm that this change in relative prices occurred for the U.S. and other industrialized countries relative to their trading partners. We also estimate that 15-33% of the increase in the relative wage of nonproduction (or skilled) workers in the U.S. during the 1980's is explained by rising imports.
1,021 citations
Posted Content•
[...]
TL;DR: In this paper, the authors examine the reduction in the relative employment and wages of unskilled workers in the U.S. during the 1980's and argue that a contributing factor to this decline was rising imports reflecting the outsourcing of production activities.
Abstract: In this paper we examine the reduction in the relative employment and wages of unskilled workers in the U.S. during the 1980's. We argue that a contributing factor to this decline was rising imports reflecting the outsourcing of production activities. In a theoretical model, we show that any increase in the Southern capital stock relative to that of the North, or neutral technological progress in the South, will increase the relative wage of skilled workers in both countries due to a shift in production activities to the South. Corresponding to this change in the relative wage is an increase in the price index of Northern activities within each industry, relative to that of the South. We confirm that this change in relative prices occurred for the U.S. and other industrialized countries relative to their trading partners. We also estimate that 15-33% of the increase in the relative wage of nonproduction (or skilled) workers in the U.S. during the 1980's is explained by rising imports.
891 citations
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TL;DR: The authors argue that trade in intermediate inputs, or "global production sharing," is a potentially important explanation for the increase in the wage gap between skilled and unskilled workers in the U.S. and elsewhere.
Abstract: We argue that trade in intermediate inputs, or 'global production sharing,' is a potentially important explanation for the increase in the wage gap between skilled and unskilled workers in the U.S. and elsewhere. Using a simple model of heterogeneous activities within an industry, we show that trade in inputs has much the same impact on labor demand as does skill-biased technical change: both of these will shift demand away from low-skilled activities, while raising relative demand and wages of the higher skilled. Thus, distinguishing whether the change in wages is due to international trade, or technological change, is fundamentally an empirical rather than a theoretical question. We review three empirical methods that have been used to estimate the effects of trade in intermediate inputs and technological change on wages, and summarize the evidence for the U.S. and other countries.
709 citations
Posted Content•
[...]
TL;DR: The authors argue that trade in intermediate inputs, or "global production sharing," is a potentially important explanation for the increase in the wage gap between skilled and unskilled workers in the U.S. and elsewhere.
Abstract: We argue that trade in intermediate inputs, or 'global production sharing,' is a potentially important explanation for the increase in the wage gap between skilled and unskilled workers in the U.S. and elsewhere. Using a simple model of heterogeneous activities within an industry, we show that trade in inputs has much the same impact on labor demand as does skill-biased technical change: both of these will shift demand away from low-skilled activities, while raising relative demand and wages of the higher skilled. Thus, distinguishing whether the change in wages is due to international trade, or technological change, is fundamentally an empirical rather than a theoretical question. We review three empirical methods that have been used to estimate the effects of trade in intermediate inputs and technological change on wages, and summarize the evidence for the U.S. and other countries.
507 citations