The Roots of Global Wage Gaps: Evidence from Randomized Processing of U.S. Visas

Michael Clemens

No 212, Working Papers from Center for Global Development

Abstract: This study uses a unique natural experiment to test a simple model of international differences in workers’ wages and productivity. Large differences in wages across countries could arise from several sources. These include barriers to trade in outputs, differences in technology, differences in workers, or differences in the other factors of production accessible in different countries. To measure the relative importance of these sources in one setting, this study exploits the randomized processing of U.S. visas for a group of Indian workers who produce software within a single multinational firm. In this setting, international barriers to trade in outputs, barriers to technology transfer, and all observable or unobservable differences between workers are extremely low. The results indicate that location outside of India causes a sixfold increase in the wages of the same worker using the same technology to produce a highly tradable good. Under plausible assumptions about competition in the industry, this suggests that country-of-work by itself is responsible—in this industry—for roughly three-quarters of the gap in productivity between workers in India and workers in the richest countries. These findings have implications for open questions in labor, growth, international, and development economics.

Keywords: growth; economic development; wealth of nations; productivity; migration; lottery; information technology; wage differences; poverty; income distribution; human capital; spatial differences; agglomeration; price equivalent; tariff equivalent; labor mobility; location; high tech; software; technology (search for similar items in EconPapers)
JEL-codes: F22 J61 O15 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2010-06
New Economics Papers: this item is included in nep-dev, nep-lab and nep-mig
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Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:cgd:wpaper:212

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