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International Trade and Income Inequality

Taiji Furusawa (), Hideo Konishi () and Tran Duong
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Tran Duong: University of Tsukuba

No 849, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: We propose a simple theory that shows a mechanism through which international trade entails wage and job polarization. We consider two countries in which individuals with different abilities work either as knowledge workers, who develop differentiated products, or as production workers, who engage in production. In equilibrium, ex ante symmetric firms attract knowledge workers with different abilities, which create firm heterogeneity in product quality. Market integration disproportionately benefits firms that produce high-quality products. This winner-take-all trend of product markets causes war for talents, which exacerbates income inequality within the countries and leads to labor-market polarization.

Keywords: Job polarization; middle-income class; globalization; trade liberalization (search for similar items in EconPapers)
JEL-codes: F12 F16 J31 (search for similar items in EconPapers)
Date: 2013-10-30, Revised 2018-09-22
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Forthcoming, Scandinavian Journal of Economics

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