Labour Mobility, Capital-Skill Complementarity and the Redistributive Effects of Trade Integration

Carlo Devillanova, Michele Di Maio and Pietro Vertova
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Pietro Vertova: University of Bergamo, Italy.

No 188, KITeS Working Papers from KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy

Abstract: This paper addresses the role of mobility costs in shaping the effects of trade integration on wage inequality and welfare. We present a three-factor, two-sector model in which the production technology exhibits capital-skill complementarity and the cost of moving across sectors differs between unskilled and skilled workers. We consider a proportional tax on skilled workers’ wage that is used to finance a re-training program to reduce the mobility costs of unskilled workers. We show that if the training program is sufficiently effective, a positive tax rate can both reduce wage inequalities and reinforce the welfare-enhancing effects of trade integration. In addition we show that, even when the public programme entails some welfare losses, it can make trade integration Pareto superior with respect to autarky.

Keywords: Capital-Skill Complementarity; Intersectoral Labour Mobility; Wage In-equality; Trade Integration. (search for similar items in EconPapers)
JEL-codes: E24 J31 R23 (search for similar items in EconPapers)
Pages: pages 25
Date: 2006-11, Revised 2006-11
New Economics Papers: this item is included in nep-geo, nep-int and nep-mac
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