Assignment reversals: trade, skill allocation and wage inequality

Thomas Sampson

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The allocation of skilled labor across industries shapes inter-industry wage differences and wage inequality. This paper shows the ranking of industries by workforce skill differs between developed and developing countries and develops a multi-sector assignment model to understand the causes and consequences of this fact. Heterogeneous agents leverage their ability through their span of control over an homogeneous input. In equilibrium, higher skill agents sort into sectors where the cost per efficiency unit of input is lower. Consequently, skill allocation is endogenous to country-sector specific variation in input productivity and costs and when the ranking of sectors by effective input costs differs across countries there is an assignment reversal. Assignment reversals between North and South have novel implications for how trade affects wages because they imply the Stolper-Samuelson theorem does not hold. Instead, each country has a comparative advantage in its high skill sector and output trade integration causes the relative wage of high skill workers, and wage inequality within the high skill sector, to increase in both countries

JEL-codes: F11 F16 J24 J31 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2016-05-01
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (17)

Published in Journal of Economic Theory, 1, May, 2016, 163, pp. 365 - 409. ISSN: 0022-0531

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http://eprints.lse.ac.uk/65429/ Open access version. (application/pdf)

Related works:
Journal Article: Assignment reversals: Trade, skill allocation and wage inequality (2016)
Working Paper: Assignment Reversals: Trade, Skill Allocation and Wage Inequality (2011)
Working Paper: Assignment reversals: trade, skill allocation and wage inequality (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:65429

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