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Globalization, labor mobility and the wage skill gap

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This paper analyzes the labor market effects of globalization, de ned as the expansion in openness that follows an increase in the terms-of-trade, in the presence of a non-tradable sector and uncertainty. The results show an increase in the wage skill gap, a decline in the real wage and welfare of unskilled workers, and an expansion of inter-sectoral mobility and wage volatillity. These results accord with stylized facts and, remarkably, are robust to the empirical evidence usually presented to dismiss the role of international trade. The model assumes that labor demand uncertainty arises from industry-speci c productivity shocks, and that the costs of inter-sectoral mobility are lower for skilled workers.

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp1999/99-56.pdf

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Copyright INSEAD. All rights reserved