The Effects of Globalisation on Wage Inequality: New Insights from a Dynamic Trade Model with Heterogeneous Firms. WWWforEurope Working Paper No. 49

Mariya Mileva, Sebastian Braun and Wolfgang Lechthaler

in WIFO Studies from WIFO

Abstract: Fears of increasing inequality play a dominant role in current debates on how globalisation is affecting our economies. After a brief review of recent trends in wage inequality, this policy paper presents new insights on the dynamic effect of trade liberalisation on wage inequality. In the context of a dynamic trade model with costly labour mobility, we show that the effect of trade liberalisation on wage inequality depends on 1. the time horizon considered, 2. the degree of worker mobility, and 3. the degree of trade liberalisation (partial/full). In the short run, observed increases in wage inequality are driven by an increase in inter-sectoral wage inequality, while in the long run, wage inequality is driven by an increase in the skill premium.

Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:wfo:wstudy:47093

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