Skills, Tasks and the Scarcity of Talent in a Global Economy

Michael Koch

VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy from Verein für Socialpolitik / German Economic Association

Abstract: This paper sets up a heterogeneous firms model, where production consists of a continuum of tasks that differ in complexity. Firms hire low-skilled and high-skilled workers to perform these tasks. How firms assign workers to tasks depends on factor prices for the two skill types and the productivity advantage of high-skilled workers in the performance of complex tasks. I study the firms assignment problem under two labor market regimes, which capture the polar cases of fully flexible wages and a binding minimum wage for low-skilled workers. Since the minimum wage lowers the skill premium, it reduces the range of tasks performed by high-skilled workers, which increases firm-level productivity and reduces the mass of active firms. Whereas trade does not affect the firm-internal assignment of workers to tasks, it reduces the range of tasks produced by high-skilled workers within firms and thereby lowers firm-level productivity, if low-skilled wages are fixed by a minimum wage. In this case trade leads to higher per-capita income for both skill types and thus to higher welfare in the open than in the closed economy, whereas inequality between the two skill types decreases.

JEL-codes: F10 F12 F16 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-bec, nep-cse and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc14:100337

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